Abstract

In view of evidence linking herding and social mood, we examine whether the positive mood documented during Ramadan translates into higher herding compared to non-Ramadan days. Drawing on a sample of seven majority Muslim countries, we report significant herding during Ramadan in most of our sample markets. Additionally, we show that herding appears significantly stronger within rather than outside Ramadan for most tests whereby its significance is manifested on both Ramadan- and non-Ramadan-days. Overall, herding significance within/outside Ramadan exhibits some variation in its levels across markets in relation to variables reflective of market states, both domestically (market returns; market volume) and internationally (US market returns; US investors’ sentiment; global financial crisis) market states.

Introduction

Religion is identified in several studies as a key factor underlying aspects ofthe economic and financial environment. From individual investors’ perspective, religion has been found to affect the propensity to save (Guiso et al., 2003; Renneboog and Spaenjers, 2012), the decision to invest in stocks (Renneboog and Spaenjers, 2012) and risk-attitudes (Miller and Hoffmann, 1995; Barsky et al., 1997; Hilary and Hui, 2009; Kumar, 2009; Kumar et al., 2011). From an aggregate market perspective, religion has been shown to affect IPO-underpricing (Kumar et al., 2011), economic growth (Barro and Mccleary, 2003) and creditor protection (Stulz and Williamson, 2003)