The Impact of Ramadan month on market stock returns anomalies: an empirical investigation of Palestine Exchange (PEX)

The main purpose of the current study is to examine the impact of Ramadan month on stock returns at the Palestine Exchange (PEX). The study sample consists of all Palestinian public shareholding companies listed in the PEX. The comparison period used in this study consists of 30 days before Ramadan month, 30 days after Ramadan month, and Ramadan month (30 days). This gives a total of 90 days in a year for ten years (2006–2016). The GJR-GARCH technique is used. The results of the study show that Ramadan month has a remarkable effect on the stock returns of the companies in the PEX. The results indicate a significant impact on earnings per share (EPS) in the PEX. Furthermore, there is a positive relationship between the stock returns and the market value in Ramadan month. The profits are increased in the industrial and investment companies due to the high demands in Ramadan month. Therefore, the companies should work to keep a steady performance in the whole year. Besides, the capacity of industrial and investment companies should be increased to meet the high demand in Ramadan month. This study will help Palestinian investors to effectively time their trading. This study is considered one of the pioneering studies that discuss the impact of Ramadan month on the stock returns in the context of Palestine Stock Exchange.


INTRODUCTION
According to behavioral finance, most investors are rational. They update their beliefs in the right way when there is new information (Pesaran, 2005). Fama (1970) stated that an efficient market is a market where investors can be freely trading in the stock markets with full availability of information. This is supported by Reilly and Brown (2004) who said that an efficient stock market has a high response for new information. The rationality of market efficiency was attacked by different policymakers (Lo, 2005). Aduda, Oduor, and Omwonga (2012) said that people suffer from emotional biases and behave in a seemingly irrational way.
The anomalies of efficient markets were the main topic for several former studies. They all gave clear evidence that the efficient market hypothesis holds certain unexpected deviations in the movement of price(s). Having the idea of coherent and correlated predictions, the price gives all the related information. This makes the market effective. Aside from the above, the relationship between the price and the data, the stakeholders can hardly have inconsistent funds (Fama, 1970). Otherwise, in reality, abnormal returns can occur due to different shifts in stock prices that are caused by some sudden reactions. EMH anomalies are the main interest in the academic field, such as the effect of January (Branch, 1977), the ignored effect of firms (Arbel & Strebel, 1983), the effect of exchange listing (Ritter, 1991), and the effect of size (Reinganum, 1992). Schwert (2003) defined an anomaly as the deviation, which changes relatively from a model behavior of normal return in which depends on various market efficiency levels. In the financial market, anomaly means when the return of the stocks is deviating from the EMH assumptions (Latif, Arshad, Fatma, & Farooq, 2011). Fama (1970) explained it over three market forms of efficiency: weak-form, semi-strongform, and strong-form. The existence of abnormal returns is considered even if the market is in the weakest form of efficiency because the available information is not reflected by the existing price (Jensen, 1978). Furthermore, sometimes, "anomaly" as a term is misapplied and misused. Modern finance theory considers anomaly as a model of an EMH shortage in explaining the movement of the price and a failure to develop behavioral finance. Anomaly originally means the irregularity that could appear because of common or natural order deviation. The occurrence of an anomaly is simply expected because there is a possible mismatch between what the theory supposed to happen and what happens in reality on the ground. Before understanding anomaly and by supposing that it is a "puzzle," which has been solved, then what could be the meaning of anomaly if it does not exist anymore. The academic literature recognized the word "effect" to illustrate the EMH theory "puzzle" and help in maintaining neutrality (Frankfurter & McGoun, 2001). This study examines the impact of Ramadan month on the stock returns anomaly in the Palestine Exchange (PEX). The Palestine Exchange (PEX) is a new stock exchange established in 1995. It provides Palestinian investors an opportunity to trade in different sectors with full disclosure and transparency. In 2012, it had 46 listed companies with a gross capitalization reaches to USD 3 billion in different sectors like services, insurance, financial services. Not too many studies study the impact of Ramadan month on stock market returns in the case of Palestine.
More interestingly, Palestine lags behind the most emerging economies in the world due to its situation as it is occupied and largely depends on donations and international aids from the whole world. Therefore, the output of this study will be very beneficial for policymakers, finance scholars, and bankers at the global level to develop their strategies accordingly. Moreover, the main three objectives are to find out the impact of Ramadan month on stock returns anomalies: 1. To check the change in stock returns arising from Ramadan month effect in the PEX.
2. To find out the impact of pre and post Ramadan month anomalies in the PEX share index in the study period.
3. To examine the effect of Ramadan month on stock returns anomaly in the PEX.

LITERATURE REVIEW
Most of the studies in the area of market anomalies are done in developed countries, including day-ofthe-week effect (Kiymaz & Berument, 2003;Kulavi, 2013) holiday effect (Marrett & Worthington, 2007;Dodd & Gakhovich, 2011;Rasugu, 2005;Osman, 2007), and turn-of-the-month effect (Waithaka, 2013;Ray, 2012), among others. The findings prove these anomalies. There is a shortage in these studies in developing or emerging markets, especially in the countries that follow the Islamic way of in-vestment like Palestine. Islamic finance has now a momentum in the world, particularly Islamic equities return (Sultan & Malik, 2013). This is because Islamic finance is growing fast in the last decade (Alrashidi, 2013

Research design
The methodology of the study was based on the GJR-GARCH Model by Glosten et al. (1993). It is a method applied to analyze the anomalies and their effect on stock returns. Following the normality assumption of , zt γ is multiplied by 1/ 2. in which P' shows that the stock price is adapted to the capital change in time t (e.g. dividend, rights issues, etc.).
θ is the effect of the excluded dummy variables. β shows that market volatility. All the conditions of the GJR-GARCH model are estimated at the same time with ML estimator.

Sampling and companies' selection criteria
The study consists of all Palestinian public shareholding companies listed in the PEX between 2006 and 2016. The following conditions are considered for the listed companies: • The company is listed on the Palestine Stock Exchange.
• The company has been investing from 2006 until 2016 since the data available as of year 2006.
• The company has not stopped trading during the study period (2006-2016).
• It should not be added during the study period.
• The financial year should be completed in December of each year.
• The availability of the companies' data during the study period to measure the variables.
Based of the above criteria, 32 companies were selected for the study. The comparison period for this research comprised of 30 days before Ramadan and 30 days after Ramadan, and Ramadan month (30 days) ( Figure 1). This gives a total of 90 days in a year. The period of the study spans from 2006 to 2016.
The daily stock returns for the event window and comparison period were computed using the following formula: prices for day t, and 1 x P − -market closing price for day 1 t − (previous day). The mean daily return was calculated for both the event window and comparison periods. SPSS was used to analyze the data.

Measurement of Ramadan effect
GJR-GARCH is a method applied to analyze the anomalies and their effect on stock returns. The empirical observations show that when compared to positive shocks, the variance in the day t is affected by the negative shocks in the day 1 t − . This confirms that the GJR-GARCH method is better is the efficient coefficient related to a negative shock. However, γ, which is statistically significant, reflects the negative chocks in the financial times series. (Glosten For instance, if one assumes that the conditional heteroscedasticity is present, GJR-GARCH model will suggest that there is a specific form for it. When given the assumed standard Gaussian -the Consequently, it leads to the following: In model 2, all the parameters could be valued with maximum likelihood estimator at the same time, excluding the leptokurtic returns. The GJR-GARCH model shows good results related to volatility and clustering of the time series. If volatility is high in day 1, t − it will likely to be higher in time t accordingly, the variance in t is affected by a shock in day

RESULTS
This section gives the descriptive analysis and techniques that test the effect of Ramadan month and other months in the stock returns in Palestine.   Table 2 that the largest trading value of the months is Shaaban month. It also shows that the standard deviation is higher than the means of traded values in each sector. This is due to the high fluctuation in the trading values where some companies showed very low trading activity, while others showed a very high trading activity. This is justified by the nature of the Palestinian market, which is affected by the current political conflicts and tensions in the region. Besides, it is clear that the mean of closing price in the insurance, banking, and services sectors is also high, as explained earlier.    Table 4 shows that the highest share price of the months was in Shawwal and Ramadan months. In all sectors, the standard deviation is relatively high compared to the means. This indicates that the prices have a high volatility due to unstable situations and political conflict in Palestine.  Table 3 and Table 5 together, it is clear that there is a relationship between the number of trades and the trading volume. The sectors that show a high number of trades, also showed a higher trading volume. This means the companies with high trading volume are trying to make more profit and to lead the market. It is clear from Table 6 that the overall average of the volatility in the Palestine Stock Exchange is 6.884 with a standard deviation 4.897. The results of Table 6 show that the highest volatility of the three months is in Shaaban month. The highest volatility indicates the instability of all due to market instability and political conditions in Palestine.  Table 7 shows the results of ADF for the stationary tests. The results for all sectors are negative for both with constant and with constant and trend. It shows -57.387 for banking sector and -20.578 for industry sector. The same results can be drawn for with constant and trend. This leads us to say the series is stationary, which helps us to proceed for further analyses.   Table  8 show the values of adjusted R 2 , F test value, and the significance (p-value) for the three months, Shaaban, Ramadan, and Shawwal. It gives a detailed analysis for Ramadan month, i.e., for first trimester, second trimester, and third trimester. The results of Ramadan month indicate a significant impact on the earnings per share in the PEX. The mean value of transactions was less than 0.05 in all independent variables. It is also evident that the value of the adjusted coefficient of 0.710 means that the ratio of independent variable interpretation to the dependent variable is 71%, and that 29% are other variables outside the study. It is also clear that the value of the significance level is less than 0.05, and the return on the stock in Ramadan month and in the second and third trimesters was significant and more influential than in the second trimester.

Model estimation
For Shaaban month, the results show that the value of the significance level of the transactions was less than 0.05 in the share price and trading volume. The value of the transaction level is more than 0.05 in the closing price, the trading value, the number of transactions, and the volatility. This means that the return on the share in Shaaban month did not affect the closing price.
It is also clear that the value of R 2 for is 0.667, which means that the independent variable's interpretation rate on the dependent variable is 66.7%, and that 33.3% are other variables outside the study. It is also clear that the value of the significance level for the p test is more than the significance level 0.05. Table 6 also shows the results of Shawwal month. It shows that the mean value of the coefficients was less than 0.05 in all the independent variables. This means that the variables are significant in the model. It is also clear that the value of the coefficient of determination is 0.709. This means that the independent variable is explaining 70.9 of the changes in the dependent variables. The value of the significance level for the p test is below the significance level of 0.05, which means that the model is significant and effective. This means that the return on the stock in Shawwal month is effective because of its impact in Ramadan month.

Insurance sector
The following formula is used: Therefore, there is no relationship between these variables and Ramadan month.

Investment sector
The

CONCLUSION
This study aimed to analyze Ramadan effect on stock returns at the PEX. The study is helpful to the interested stakeholders. The results also showed a positive significant Ramadan effect on the stock returns in the PEX. The mean return in Ramadan is greater than the mean return in all other days of the year. The study also checked the mean changes before, during, and after Ramadan. The mean return during the last ten days of Ramadan is higher as compared to first ten days of Ramadan and other months. This study helps in implementing the regulations and policies to control the action of stock market if an anomaly is found in a specific point to improve its efficiency. Besides, it helps to attract, regain, and guarantee the confidentiality of the investor in the stock market of Palestine. As for investors, the study paves the road for the investors and stock dealers in their higher cognitive process to extend the worth of their wealth. If any anomaly is discovered, they are going to cash it to create profitable commerce. For academics, there are few studies regarding the impact of Ramadan month on stock returns, particularly within the developing countries like Palestine. The study brought new insights into stock markets in Palestine and to Islamic finance industry in which Ramadan effect is vital to many investors in the area.
The results of this study will increase the transparency, disclosure, and information in Palestine stock markets, which will help all investors around the globe to come and invest in Palestine. For the Palestinian government, the stock market's performance is a part of economic performance. The inefficient performance of markets is a signal of economic and monetary issues of any economy. This study can help in analyzing the economic performance of any country. The Palestinian government as a regulator of stock exchanges through the PEX are going to be ready to monitor the stock market performance. This could help in attracting each native and foreign investor and building a viable investment environment.

RECOMMENDATIONS
Based on the analysis of the paper, the following recommendations are given: • Ramadan has a remarkable impact on the PEX; therefore, shareholders should benefit from this; • the profits are increasing in the industrial and investment companies due to the high demands in Ramadan; therefore, the companies should work and be ready to meet the high demand in Ramadan; • some external factors such as siege, war, and settlement -other than the month of Ramadan -led to a decrease in the profits. Thus, it is important for the companies to set strategies to deal with those abnormal factors.