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Cross-sectional and time-series momentum returns: are Islamic stocks different?

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  • Muhammad A. Cheema
  • Gilbert V. Nartea

Abstract

We search for differences in both unconditional and conditional momentum returns of Islamic and Non-Islamic stocks and test implications of competing behavioural theories that aim to explain momentum returns. Our results show that there is no significant difference in momentum returns between Islamic versus Non-Islamic stocks with respect to both cross-sectional (CS) and time-series (TS) momentum strategies even when we condition momentum returns on market dynamics, information uncertainty and idiosyncratic volatility. We also find that the TS strategy outperforms (underperforms) the CS strategy in market continuations (transitions) consistent with the recent evidence in the U.S. market.Furthermore, we find that CS and TS strategies of both Islamic and Non-Islamic stocks are profitable only when the market continues in the same state consistent with overconfidence driving momentum returns of both Islamic and Non-Islamic stocks.

Suggested Citation

  • Muhammad A. Cheema & Gilbert V. Nartea, 2018. "Cross-sectional and time-series momentum returns: are Islamic stocks different?," Applied Economics, Taylor & Francis Journals, vol. 50(54), pages 5830-5845, November.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:54:p:5830-5845
    DOI: 10.1080/00036846.2018.1488068
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    Cited by:

    1. Cheema, Muhammad A. & Chiah, Mardy & Man, Yimei, 2020. "Cross-sectional and time-series momentum returns: Is China different?," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).
    2. Mirza, Nawazish & Abbas Rizvi, Syed Kumail & Saba, Irum & Naqvi, Bushra & Yarovaya, Larisa, 2022. "The resilience of Islamic equity funds during COVID-19: Evidence from risk adjusted performance, investment styles and volatility timing," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 276-295.

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