Does financial news predict stock returns? New evidence from Islamic and non-Islamic stocks

Paresh Kumar Narayan, Deepa Bannigidadmath

Research output: Contribution to journalArticleResearchpeer-review

87 Citations (Scopus)

Abstract

The paper extends the time-series financial news data set constructed by Garcia (2013) and uses it to examine whether financial news predicts returns of Islamic stocks differently compared to non-Islamic (conventional) stocks. We find that they do. First, while both positive and negative worded news predict most Islamic and conventional stock returns, positive words have a larger impact on both types of stock returns. Second, shock to returns from financial news reverses only in part for some stocks. Third, for a mean-variance investor, investing in Islamic stocks is relatively more profitable than investing in the corresponding conventional stocks. Fourth, we show that profits are robust to a range of time-series risk factors, namely, market risk, size-based risk, and momentum-induced risk.

Original languageEnglish
Pages (from-to)24-45
Number of pages22
JournalPacific Basin Finance Journal
Volume42
DOIs
Publication statusPublished - Apr 2017
Externally publishedYes

Keywords

  • Financial news
  • Islamic stocks
  • Predictability
  • Profits
  • Returns
  • Trading strategy

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