Examining anomalies in Islamic equity market of Pakistan

ABSTRACT

The purpose of this study is to investigate the presence of anomalies named; January effect, Islamic calendar effect, Day of the week effect, Time of the month effect, Turn of the month effect and Half of the month effect in an Islamic equity market of Pakistan. This study considered daily data from 30 September 2008 to 30th June 2015. The behavior of the data is tested by using the descriptive statistics method. The Generalized Auto Regressive Conditional Heteroskedasticity Model (GARCH) model is applied to capture the seasonality in returns and volatility in the Islamic equity market. The results of this study highlight certain interesting key findings. The notable findings indicates the absence of prominent January effect and the Ramadan effect. However, this study finds significant Day of the week effect, Turn of the month effect, Time of the month effect and Half of the month effect in the Islamic index. This study suggests that investors would be able to gain abnormal returns, if they would formulate their investment strategies accordingly to the seasonal return patterns observed in this study.

KEYWORDS:

• Anomalies
• Islamic equity market
• Pakistan
• GARCH

JEL CLASSIFICATIONS:

• G02
• G14

Notes on contributors

Khalil Jebran is a PhD candidate at School of Accounting, Dongbei University of Finance and Economics, China. His research interests include Financial markets, Foreign Exchange Markets, Corporate Governance, Behavioral Finance, and Capital Structure. He has published many research papers in international journals.

Shihua Chen is an associate professor at School of Business Administration, Dongbei University of Finance and Economics, China. His research interests include Corporate Governance and Merger and Acquisition. He has published many research papers.

ORCID

Khalil Jebran http://orcid.org/0000-0003-0594-4775

Notes

1. The business activities prohibited in Islam are selling haram meat, pork, liquor or involved in gambling, or any other impermissible activities.

2. Non-compliant investment includes; bonds, conventional mutual funds, commercial paper, conventional money market instruments etc.

3. Income from gambling, interest based income, or any other income earned through impermissible activities.

4. Non-current assets are all fixed assets like plant and equipment, property, stores etc.

5. http://www.islamicfinder.org/dateConversion.php

Additional information

Funding

This work was supported by National Natural Science Foundation of China [grant number project number: 71472030].