Abstract
This study compares the momentum profitability of Islamic and conventional stocks in Malaysia and examines whether the presence of momentum profits is market-state dependent. Winner portfolios are shown to outperform loser portfolios, suggesting that a momentum effect exists in the equity market. Islamic stocks exhibit stronger momentum than conventional stocks. Interestingly, although pursuing profit is not the primary goal of Islamic stock investors, the findings indicate that momentum profits for all Islamic stock trading strategies are higher than those for conventional stocks. The profits from momentum strategies for both stocks are market-state dependent. In all trading strategies, while there are significant positive momentum profits following market upturns, there is no evidence of profits subsequent to market downturns. Overall, Islamic stocks yield higher momentum profits than conventional stocks across market states. These findings are robust to using various measures of the state of the market. While the presence of momentum profits is also robust to the inclusion of Fama-French?s (1993) risk factors, the risk factors are unable to explain momentum profits, suggesting that the risk-adjusted momentum profits are not due to risk compensation. Rather, the profitability is evidence of stock mispricing.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.