Cross-Sectional and Time-Series Momentum Returns and Market Dynamics: Are Islamic Stocks Different?

Muhammad Cheema and Gilbert Nartea

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: We search for differences in both unconditional and conditional momentum returns of Islamic and Non-Islamic stocks and test implications of competing behavioral theories that aim to explain momentum returns. Our results show that there is no significant difference in momentum returns between Islamic versus Non-Islamic stocks with respect to both cross-sectional (CS) and time-series (TS) momentum strategies even when we condition momentum returns on market dynamics, information uncertainty (IU), and idiosyncratic volatility (IV). We also find that the TS strategy outperforms (underperforms) the CS strategy in market continuations (transitions) consistent with the recent evidence in the U.S. market. Furthermore, we find that CS and TS strategies of both Islamic and Non-Islamic stocks are profitable only when the market continues in the same state consistent with overconfidence driving momentum returns of both Islamic and Non-Islamic stocks.

Keywords: Islamic stocks; cross-sectional; time-series; momentum returns; market dynamics (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2017-11-01
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:17/14

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