Does Financial News Predict Stock Returns? New Evidence from Islamic and Non-Islamic Stocks

Paresh Kumar Narayan and Deepa Bannigidadmath

Pacific-Basin Finance Journal, 2017, vol. 42, issue C, 24-45

Abstract: The paper extends the time-series financial news data set constructed by Garcia (2013) and uses it to examine whether financial news predicts returns of Islamic stocks differently compared to non-Islamic (conventional) stocks. We find that they do. First, while both positive and negative worded news predict most Islamic and conventional stock returns, positive words have a larger impact on both types of stock returns. Second, shock to returns from financial news reverses only in part for some stocks. Third, for a mean-variance investor, investing in Islamic stocks is relatively more profitable than investing in the corresponding conventional stocks. Fourth, we show that profits are robust to a range of time-series risk factors, namely, market risk, size-based risk, and momentum-induced risk.

Keywords: Islamic stocks; Returns; Financial news; Predictability; Trading strategy; Profits (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (47)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:42:y:2017:i:c:p:24-45

DOI: 10.1016/j.pacfin.2015.12.009

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