Price and volume effects around Islamic index revisions: the case of DJIM-GCC

Chiraz Labidi, Dorra Laribi and Loredana Ureche-Rangau ()
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Chiraz Labidi: UAEU - United Arab Emirates University
Loredana Ureche-Rangau: LEFMI - Laboratoire d’Économie, Finance, Management et Innovation - UR UPJV 4286 - UPJV - Université de Picardie Jules Verne

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Abstract: Purpose This study explores the price and trading volume effects around the quarterly Dow Jones Islamic Market-GCC index (DJIM-GCC) revisions and investigates whether these reactions are driven by firms' fundamentals or by investors' perception of ethical screening. Design/methodology/approach The authors adopt an event study methodology to analyze the price and volume effects of Islamic indices redefinitions. Findings The results exhibit a positive (negative) price reaction for added (deleted) stocks. The authors also document an asymmetric volume response for index additions and deletions. The multivariate analysis of the cumulative abnormal returns reveals that the documented market reaction around Islamic index revisions is mainly related to the compliance attribution (withdrawal). Originality/value The approach allows to separate the market reaction arising from changes in firms' fundamentals from that induced by investors' perception of the attribution or withdrawal of a compliance certification. Moreover, the focus on the GCC region, where countries share the same cultural traits and perceive Islamic law identically excludes any social effect that would influence the market reaction due to cultural differences between countries.

Date: 2022
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Published in Managerial Finance, 2022, 48 (2), pp.222-242. ⟨10.1108/MF-11-2020-0564⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03688873

DOI: 10.1108/MF-11-2020-0564

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