Effect of the Ramadan Month on Stock Return Anomalies: Evidence from the Moroccan Stock Market

Abstract

Abstract: The calendar anomalies observed on the stock markets are abnormal returns identified over specific periods of the year, they can take several forms: the January effect, the end-of-month effect, the holiday effect and the seasonality effect, often linked to investor behaviour influenced by psychological, behavioural, cultural and religious factors, thus violating the hypothesis of the efficiency of the financial markets. The objective of this article is to investigate the probability of the existence of calendar anomalies in the Moroccan stock market, in particular, related to the holy month of Ramadan, by analyzing the impact of this effect on returns and conditional volatility. To conduct this study, daily data from the MASI index, the main indicator of the Casablanca Stock Exchange, was selected over a period from 2005 to 2025, in order to capture all variations in returns. These models are calculated from the daily closing prices of the index and modelled using a rigorous econometric approach, using the ARMA (2.1) models for the mean equation and GARCH (1.1) for the variance equation, while incorporating a dummy variable for the days of Ramadan. The results obtained indicate that the average returns observed during the holy month of Ramadan are slightly higher than those observed outside this month. However, the conditional volatility detected shows a significant decrease during this period of Ramadan, thus confirming the stability of the market, and shows that anomalies in the lunar calendar (Ramadan) manifest themselves as a change in risk dynamics rather than an improvement in returns. Keywords: Ramadan effect; calendar anomaly; Moroccan stock market; ARMA-GARCH; return; volatility. Classification JEL: G14 Paper type: Empirical Research