Idiosyncratic momentum anomaly and Shari’ah compliant stocks: A firm-level empirical analysis of US equity market
Abstract/Description
Purpose: This study evaluates whether portfolio sorting based on idiosyncratic momentum) yields anomalous risk-adjusted profits in Shari’ah stocks.
Design: Using a sample of all primary domestic ordinary shares traded on US stock exchanges, such as NYSE, AMEX, and NASDAQ covering the sample period 1986 to 2020.The study used simple ordinary least square (OLS) regression model and the GRS/factor spanning/Fama-MacBeth (1973) tests by utilizing common asset pricing factor models.
Findings: Our empirical evidence indicates that the idiosyncratic momentum strategy is effective for Shari'ah-compliant stocks. These findings related to other characteristic variables, the superiority of imom strategy cannot be explained by these variables. Similarly, factor spanning test results suggest that imom cannot be ascribed to a priced risk factor. Our robustness results show that imom returns are not sensitive to the seasonal effect.
Originality: To the best of authors’ knowledge, this is the first study that examines imom strategy in Shari’ah compliant stocks.
Research limitations/implications: Factor data is region specific. These results have investment implications for investors and portfolio managers, as imom profits do not vary across different months of the year and do not need adjustment to avoid losses because of the reversal in January. Therefore, offer lower transaction costs, higher profitability, and a more practically implementable investment strategy.
Practical implications: Investors who follow Islamic finance principles could benefit from using imom strategy.
Social implications: Investors can acquire additional knowledge that can improve their investing performance on imom strategy.
Keywords: idiosyncratic momentum, Shari’ah stocks, risk-adjusted profit, asset pricing factor model
Track
Finance
Session Number/Theme
4A: Finance
Session Chair
Dr. Saqib Sharif ; Dr. Mujeeb Bhayo
Start Date/Time
31-5-2024 9:00 AM
End Date/Time
31-5-2024 10:30 AM
Location
MCS – 3 AMAN CED Building
Recommended Citation
Shaikh, N. (2024). Idiosyncratic momentum anomaly and Shari’ah compliant stocks: A firm-level empirical analysis of US equity market. 3rd IBA SBS International Conference 2024. Retrieved from https://ir.iba.edu.pk/sbsic/2024/program/42
COinS
Idiosyncratic momentum anomaly and Shari’ah compliant stocks: A firm-level empirical analysis of US equity market
MCS – 3 AMAN CED Building
Purpose: This study evaluates whether portfolio sorting based on idiosyncratic momentum) yields anomalous risk-adjusted profits in Shari’ah stocks.
Design: Using a sample of all primary domestic ordinary shares traded on US stock exchanges, such as NYSE, AMEX, and NASDAQ covering the sample period 1986 to 2020.The study used simple ordinary least square (OLS) regression model and the GRS/factor spanning/Fama-MacBeth (1973) tests by utilizing common asset pricing factor models.
Findings: Our empirical evidence indicates that the idiosyncratic momentum strategy is effective for Shari'ah-compliant stocks. These findings related to other characteristic variables, the superiority of imom strategy cannot be explained by these variables. Similarly, factor spanning test results suggest that imom cannot be ascribed to a priced risk factor. Our robustness results show that imom returns are not sensitive to the seasonal effect.
Originality: To the best of authors’ knowledge, this is the first study that examines imom strategy in Shari’ah compliant stocks.
Research limitations/implications: Factor data is region specific. These results have investment implications for investors and portfolio managers, as imom profits do not vary across different months of the year and do not need adjustment to avoid losses because of the reversal in January. Therefore, offer lower transaction costs, higher profitability, and a more practically implementable investment strategy.
Practical implications: Investors who follow Islamic finance principles could benefit from using imom strategy.
Social implications: Investors can acquire additional knowledge that can improve their investing performance on imom strategy.
Keywords: idiosyncratic momentum, Shari’ah stocks, risk-adjusted profit, asset pricing factor model
