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Is there a financial news risk premium in Islamic stocks?

Author

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  • Narayan, Paresh Kumar
  • Phan, Dinh Hoang Bach
  • Narayan, Seema
  • Bannigidadmath, Deepa
Abstract
This paper examines whether there is a financial news risk premium in Islamic stocks. We utilize a unique data set that includes over 2000 stocks listed on multiple markets. Our main findings are twofold. First, simple trading strategies that buy high news sensitive portfolios and sell low news sensitive portfolios generate annualized returns of 4.92% to 12.48%. Second, we perform a momentum trading strategy for high and low news sensitive stocks and find that while both portfolios are profitable, investing in a portfolio of high news sensitive stocks generates an additional profit of 5.60% per annum. Our results are robust to different composition of portfolios, different momentum portfolio rules, and market risk-adjusted excess returns.

Suggested Citation

  • Narayan, Paresh Kumar & Phan, Dinh Hoang Bach & Narayan, Seema & Bannigidadmath, Deepa, 2017. "Is there a financial news risk premium in Islamic stocks?," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 158-170.
    • Handle: RePEc:eee:pacfin:v:42:y:2017:i:c:p:158-170
    DOI: 10.1016/j.pacfin.2017.02.008
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    3. Zhang, Yaojie & Zeng, Qing & Ma, Feng & Shi, Benshan, 2019. "Forecasting stock returns: Do less powerful predictors help?," Economic Modelling, Elsevier, vol. 78(C), pages 32-39.
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    5. Narayan, Paresh Kumar & Bannigidadmath, Deepa, 2021. "Financial news and CDS spreads," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    6. Karim, Muhammad Mahmudul & Kawsar, Najmul Haque & Ariff, Mohamed & Masih, Mansur, 2022. "Does implied volatility (or fear index) affect Islamic stock returns and conventional stock returns differently? Wavelet-based granger-causality, asymmetric quantile regression and NARDL approaches," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    7. Dharani, M. & Hassan, M. Kabir & Paltrinieri, Andrea, 2019. "Faith-based norms and portfolio performance: Evidence from India," Global Finance Journal, Elsevier, vol. 41(C), pages 79-89.
    8. Narayan, Paresh Kumar & Phan, Dinh Hoang Bach & Sharma, Susan Sunila, 2019. "Does Islamic stock sensitivity to oil prices have economic significance?," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 497-512.
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    11. Wang, Lu & Ma, Feng & Niu, Tianjiao & He, Chengting, 2020. "Crude oil and BRICS stock markets under extreme shocks: New evidence," Economic Modelling, Elsevier, vol. 86(C), pages 54-68.
    12. Sunil Kanwar & Shailu Singh, 2018. "The Innovation†R&D Nexus in an Emerging Economy: Evidence from the Indian Manufacturing Sector," Australian Economic Papers, Wiley Blackwell, vol. 57(1), pages 35-54, March.
    13. Narayan, Paresh Kumar & Phan, Dinh Hoang Bach & Liu, Guangqiang & Ibrahim, Mansor, 2021. "Ethical investing and capital structure," Emerging Markets Review, Elsevier, vol. 47(C).
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    16. Mehmet Asutay & Yumeng Wang & Alija Avdukic, 2022. "Examining the Performance of Islamic and Conventional Stock Indices: A Comparative Analysis," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(2), pages 327-355, June.
    17. Xiao Wu, Dong & Yao, Xiao & Luan Guo, Jian, 2021. "Is Textual Tone Informative or Inflated for Firm’s Future Value? Evidence from Chinese Listed Firms," Economic Modelling, Elsevier, vol. 94(C), pages 513-525.
    18. Solikin M. Juhro & Dinh Hoang Bach Phan, 2018. "Can Economic Policy Uncertainty Predict Exchange Rate And Its Volatility? Evidence From Asean Countries," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 21(2), pages 251-268, October.
    19. Wen, Jun & Zhao, Xinxin & Fu, Qiang & Chang, Chun-Ping, 2023. "The impact of financial risk on green innovation: Global evidence," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

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