Islamic Calendar Effects and Stock Market Behaviour in India: Evidence from Shariah and Conventional Indices

Abstract

The study examines the influence of the Islamic calendar specifically, the week day, Islamic month, and Ramadan on the returns, risk-adjusted performance, and volatility of Shariah and conventional stock indices in India. Daily data for the Nifty 50, Nifty Shariah 50, Nifty Shariah 500, FTSE All-World, and FTSE Shariah indices from 2018 to 2022 were analysed. Returns were computed using log-difference transformations and mapped onto the Islamic (Hijri) calendar. Day of the week effects were estimated using OLS with robust errors; risk-adjusted performance was examined using Sharpe, Treynor, and Jensen ratios. Ramadan effects on returns were assessed through multiple regression controlling for domestic and global benchmarks. GARCH(1,1) and GJR-GARCH models assessed Ramadan-induced volatility behaviour. The study finds a significant day of the week effect on stock market indices with Monday returns being significantly negative while Tuesday returns are significantly positive for both indices. Month of the year effects are generally insignificant, although Jumada-Al-Awwal exhibits consistently negative and significant returns across indices. Risk-adjusted metrics reveal that Shariah indices outperform during Ramadan but underperform during non-Ramadan periods. Ramadan shows no significant impact on returns once benchmark indices are controlled for, but significantly influences volatility, with strong evidence of volatility clustering and leverage effects. The results imply that the high worship intensity and ethical investment associated with the Ramadan period affects the stock market’s volatility. The study recommends that portfolio managers exploit the predictable negative Monday and positive Tuesday patterns. More so, Shariah-compliant investors may benefit from investing in Shariah indices during non-Ramadan periods and realising gains during Ramadan.