Forecasting is a critical theory in the venture into the stock market. Experienced investors can identify the time and a particular share appropriate to buy or sell. These decisions depend entirely on the availability of information in the market at that particular time. However, even after mastering the trend line of share prices in the market, they still need to update themselves on the probable forces that are likely to affect their stock portfolios. One of these forces affecting stock markets is the seasonality, which is a characteristic of the time series data to recur annually. A good example of seasonality is Ramadan, a festive season that is associated with the Muslim religion. Several studies have indicated that the Month of Ramadan has some effects on the stock markets. However, there are varied findings on whether such effects are positive or negative with the majority of the researchers agreeing that Ramadan has positive effects on the stock market. By harmonizing a time series data from Abu Dhabi Security Exchange (ADX) and Dubai Financial Market, the study sorts to affirm the effect of Ramadan on the United Arab Emirates stock markets. In addition, the results should establish whether the two stock markets are weak or strong depending on their response to market information.

United Arab Emirates Stock Exchange

Stock forecasting is one of the most important aspects of trading in the stock exchange. Most investors can predict with certainty the values of some shares in a stock market after viewing the trend line of that particular stock. In doing so, they usually put into considerations some of the extraneous variables that could affect their return. Such variables include seasonality, cycles, and randomness among others. However, the study only isolated and examined the effect of Ramadan in the Islamic Lunar Calendar as one of the seasonal variables on the stock exchange within the realm of the United Arab Emirates stock exchange. The paper further estimated the response of the UAE stock market in order to determine whether the market is weak or not (Ali and Mustafa, 2011, p. 650).

Ramadan is one of the most celebrated events among the Muslim community, which includes over 1.5 billion people all over the world. The holy Qur’an emphasizes the importance of Ramadan, where God revealed the holy book as a clarification and guidance to humankind and differentiated wrong from right (Qur’an 2: 185). The sighting of a crescent moon marks the beginning of this holy Islamic month involving spiritual development and fasting. During the month, most businesses remain closed and people halt major business deals. These four weeks that end in the celebrations of EId al Fitr are sometimes mannered with active economic activities (Ariss, Rasoul, and Seyed, 2011, p. 69). While the event affects most of the business operations, some sectors experience economic boom. Such businesses include increased expenditure on foodstuff and other consumable goods. Similar research findings indicate that Ramadan has a positive impact on the performance of stock exchange in Muslim countries (Al-Hajieh, Keith and Timothy, 2001, p. 350)

The UAE is among those countries, where the religion of Muslim predominates with over 96% of the total population subscribing to Islam. For this reason, they also hold dear this month of Ramadan. Most of the shops in the country remain closed and nonoperational during the afternoon and compensate for this by operating for longer hours in the evening. However, the offices of the government and other businesses in other sectors tend to close down a bit earlier than the normal hours. On the same note, it is of importance to recognize the fact that certain companies listed in the stock exchange strictly adhere to the Sharia laws for their operations in UAE (Yavuz, Güriş, and Kiran, 2008, p. 67). Thus, the observations of the Muslim doctrines are likely to have a much higher effect on them than on other business units. Indeed, various studies have shown the positive effects of Ramadan in the Stock market trade. For instance, Bialkowski et al. (2012, p. 800) revealed that the returns in the stock market are significantly higher during Ramadan and Eid al-Fitr celebrations. Similarly, Haroon and Shah (2013, p. 32) established that stock market related investment is less risky in this period, since the volatility of returns reduces significantly during the Ramadan period.

However, there has never been a study exclusively seeking to find out the effects of Ramadan on the United Arab Emirates Stock market. Therefore, the paper aimed at establishing the effects of Ramadan on the stock market of the United Arab Emirates as a contribution to the ongoing debate on the impact of Ramadan on the stock markets of Muslim countries. Furthermore, it also sought to determine the degree, to which Ramadan affects the stock market of the United Arab Emirates.


This was the first paper to study exclusively the effects of Ramadan on the United Arab Emirates Stock market. In doing so, the study sorts to establish such impacts with the aim of advising the investors on whether it would be profitable to invest during the holy month of Ramadan or not. Similarly, the findings of the study would also place the government on a better position to initiate effective policies in stimulating the stock market. More so, the current piece of study would be very valuable in serving as a reference and guidance for future studies.

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Null Hypothesis

The researcher conducted the study under the null hypothesis that Ramadan has no effect on United Arab Emirates stock market.

Challenges of the Study

There were several challenges during the study. Firstly, the conversion of the dates of Hijri for all the data to the equivalence of the standard Gregorian calendar to allow for uniform times of the data was a bit cumbersome. This is because the Muslims begin the month of Ramadan differently from each stage making the dates of the holy day be independent. Similarly, most of the states within the United Arab Emirates do not archive their official records of the previous months of Ramadan. Therefore, the study used secondary data that some researchers had already corroborated. In addition, the stock market is characterized with a beehive of activities making it difficult to isolate the impact of Ramadan on its performance with a desirable accuracy.

Similarly, the time series data was of a short period, which could be a threat to the accuracy of the results.


Stock Market is a well-organized market, where the transactions of government securities, bonds, debentures, and shares take place. It forms a very critical economic segment. It provides an ideal platform for sellers and buyers to trade securities and shares. It also indicates the way the economy is performing at a particular point. If the share prices are falling, it means that the economy is bad. However, if the share prices are rising, then it indicates that the economy is progressing well. It also plays a very important role in the industrial and commercial growth of every county that affects and reflects a country’s economy in the end. Due to its importance, the industry, the central bank, and even the government usually keenly monitor the progress of the stock market. It is critical to both the investors and the general well-being of the country. The stock market could be either primary or secondary.

On the one hand, seasonality is a characteristic of some time series data in that there are some occurrences of regular changes, which recur annually and can be easily predicted by professionals. These predictable changes form a pattern in the time series data, since they repeat themselves over a period of one year and are always seasonal. Seasonality is very different for the cyclic effects, since the later occurs within a calendar year, while the latter recurs after every year. There are various examples of seasonality, but the study chose Ramadan as one of the seasonality points in order to determine its effect on the stock exchange (Yavuz, Güriş, & Kiran, 2008, p. 68).

On the other hand, Ramadan is the ninth month within the calendar of Islam, and it is based on the movement of the moon. Muslims use this calendar majorly for the observation of functions and holidays of the Islam religion. The calendar also varies greatly from the standard Gregorian that the government and businesses use for references. According to the calendar, Hijri, the Months of the lunar cycle, are split into the two by the appearance of the new moon. It usually lasts for approximately 29 to 30 days. Ramadan depends entirely on the correct timing of the moon in a manner that if the new moon appears today, the festive of Ramadan would commence on the following day. The Eid al-Fitr would follow at the end of Ramadan (Ramezani, Abbasali & Hossein, 2013, p. 125).

Research Articles

The approval of the law guiding the stock exchange in 1999 saw the creation of the two distinct financial markets in the United Arab Emirates; namely, the Abu Dhabi security exchange and the Dubai financial market. These two markets turned Abu Dhabi into a foundation for the securities and commodities commission. Later, there was the introduction of the electronic trading on these two markets. Since then, there has been full disclosure of the trade prices and volumes that have been playing a greater role in the stability of the market. The two markets have firms from the different sectors of the economy, some of which include banking sector, hotels, industry, insurance, and service (Squalli, 2005, p. 4).

In its weak form, the Efficient Market Hypothesis (EMH) states that the prices of the efficient stock markets are supposed to fluctuate in response to the unanticipated market conditions. Its implication is that the levels of price of a stock market asset are not predictable, apart from the path of a series of cumulated random prices. Therefore, the seasonal patterns should be less or should not exist at all, since their presence means that there is the possibility of getting abnormal returns. Thus, the paper also tried to establish whether the United Arab Emirates was a weak market (Zarour, 2006, p. 121).

Many researchers have tried to link the relationship between Ramadan and the performance of the stock exchange, and the findings have been rather controversial. Białkowski, Etebari & Wisniewski (2012, p. 836) did a study to determine the investor sentiment and the returns of stock during the month of Ramadan. For comparison purposes, they denominated the continuously compounded returns into the US dollars and annualized all of them. They found a remarkable difference between the means across the sampled stock markets. Eleven out of the total sample size of fourteen countries had returns that were higher during the month of Ramadan than during the normal trading months. On a summation, the mean of the annualized dollar denominated returns that the investors realized during the month of Ramadan was about 38.9% in comparison to the lower profit of 4.32% of the other months during the year.

Al-Ississ (2010, p. 10) estimated the impact of religious faith on the performance of the financial markets by running a pooled fixed effects panel regression across all the financial markets that he examined. His study covered financial market indices in seventeen Muslim countries during the period from 1988 to 2009. He included a lagged return variable for the nonsynchronous effects of trading and used the day of the month and the week as the dummies of the year to control the seasonal and calendar regularities. According to him, the holier days of Ramadan had consistently been having higher returns than other months. He noted that the last ten days (0.18%) of this festive season usually had a higher return than the first ten days (0. 07%) of the month. He also found out that the mean returns for the period of the last five days that were odd were 0.24%, which were 3.6 times the overall mean returns on all other days of the month.
However, the mean return during the last five days of Ramadan was 0.11%, which was less than even half of the first five days. At the end, his study noted that the mean return hit the maximum during the holy Ramadan on the 27th day with an average return of 0.46%. The latter being almost seven folds the average return on all the other days of the month. He further conducted a t-test on the results and established that the mean returns during the entire 14 Ramadan days were statistically different. That is, the returns on the second, the last third, the Ramadan last five odd days and the day of 27th were statistically different from all other days of the month.

Białkowski et al. (2013, p. 16) wanted to establish whether the mutual funds managers in Turkey exploited the Ramadan anomaly. He extracted the data from the domestic mutual funds of Turkey with focus of investment on the equities of Turkey for the period from January 2000 to March 2011. The results indicated that the majority of funds that the managers were actively managing had the tendency to increase the exposure of equity around the time of Ramadan and the festive of Eid al-Fitr. He noted that the managers enhanced the performance of the risk-adjusted funds and the foreign equities of Turkey during the period of Ramadan between the year of 2000 and 2011. However, the domestic index funds were exception to the above, because they experienced a higher increase in the flows of funds from the investors. The assumption was that these investors had the motive of participating in the stock market rally. The index funds were slow and could not convert the cash inflows into the stock holdings that made it detrimental to their timing of the performance. Despite the above, the study still found out that the index funds earned the highest average raw returns among all the groups of the domestic funds during the month of Ramadan. The risk return of the mutual funds in Turkey also improved greatly during Ramadan, because the fund returns had the tendency of being less volatile compared to the other days of the year.

Gulzar and Malik (2010, p. 4) document a study on the effects of Ramadan on the Pakistan capital market. In the study, volatility was extremely low during the weeks of Ramadan. Further, the study indicated that there were no momentous changes on the average returns in the period of Ramadan. However, the study did not make a comparison between the prices of stock during the month of Ramadan and others.

Summary Comments and Criticism

Majority of the above studies seemed to have had the same findings. The studies indicate that Ramadan has a positive impact on the performance of the stock market. However, none of these studies looked at this theory with regard to the stock market of the United Arab Emirates. Therefore, the study was set to help to establish if there existed a positive correlation between Ramadan and the stock exchange market in the United Arab Emirates.


The study used time series data between the periods of 22/6/2008 and 31/12/2013. Time series was the most reliable research design, since the data set was reported along a linear progressive chart. It was also elaborate in measuring both the financial and endogenous growth witnessed during the study period (Chatfield, 2013, p. 75). The study used the extracted data from the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market. The two sources had a large spectrum of data that was up to date and comprehensive. Due to the intricacy of analyzing and forecasting of all the stock prices, which most likely could be a threat to the reliability and validity of the study, the paper filtered only data from the 19 listed banks. The critical role that the banking sector plays in most economies informed the choice of the sector over others.

The study input, cleaned, validated, and edited the data in Excel due to the ease and capabilities functions of the software. Part of data cleaning espoused conversion of the days of the month into dummy variables, where one represented day of Ramadan and zero otherwise. Similarly, the banks that subscribed to the doctrines of the Islam religion were represented by one and zero if non-Islam. The above allowed for comparison of the Islamic and non-Islamic stocks during the days of Ramadan. The researcher then exported the cleaned data to SPSS for analysis. The Study preferred the use of SPSS for analysis because of the speed, accuracy, sophistication, and complexity capabilities of the statistical software in manipulation of such data (Griffith, 2010 p. 32).

The study analyzed the impact of Ramadan on the stock exchange of the United Arab Emirates on the following simple one-step moving average model.

Rt = β0+ β1D1+ β2D2+ β3Rt-1+ µ

Where Rt = the annual mean return on investment that is the dependent variable

βi = Coefficient of regression
Rt-1 = One day lagged return on investment
D1 = Dummy variable, 1 if a Ramadan day and 0 otherwise
D2 =Dummy variable, 1 if an Islamic bank and 0 otherwise
µ = random error term

The choice of the model was a simplification of models used by Gulzar and Malik (2010, p. 6). The paper used standard statistics to analyze the results from the regression techniques. The t-statistics was used to verify the significance of the regression coefficients, the F-test to test for the overall significance of the model (a test of goodness of fit for the model), and R2, which gave the proportion of the variation in R explained by the variables jointly (Olofsson and Mikael, 2012, p. 444).

For forecasting, the study will use a one step moving average. It paper will extrapolate values using the above equations. It will then get the difference between the observed values and the actual ones (the extrapolated).

D= Ô- Ē

Where D = is the difference between observed values and the actual values

Ô= is the observed values
Ē = are the actual values that have been extrapolated

The study will then perform a four moving average to predict on the future values as follows:

Ft=(1/n)[Σ Dt=n]

Where Ft is the future value

Dt=4 are the last four figures extrapolated.
And n= the number of moving averages, in this particular case, n=4