Abstract
Using data from Saudi Arabia, a strictly religious society, we examine how Islamic events (i.e., Ramadan, Eid-ul-Fitr, Eid-ul-Adha and Ashoura) moderate the impact of social mood (positive and negative) on herding in the stock market. We use the cross-sectional absolute deviation (CSAD) of returns and find that investors' mood during Islamic events of Eid-ul-Fitr, Eid-ul-Adha and Ashoura significantly affects herding behaviour in the market. Our results, however, contrast with existing evidence of herding in the month of Ramadan. Overall, results are robust after controlling for market conditions (i.e., domestic and US market returns, liquidity, sentiments, and oil price volatility) and crisis events (i.e., global financial crisis and Arab Spring). Though most prior research investigates the impact of individual Islamic events on stocks as seasonal anomalies, our study contributes by jointly exploring how four key Islamic events, associated with contrasting moods, induce diverse herding patterns in the Saudi stock market.