Momentum strategies for Islamic stocks

We estimate momentum profits for a large portfolio of Islamic stocks, control for stock characteristics and the state-of-the-market, explore seasonal patterns, and examine the determinants of profits. We discover ample evidence that momentum strategies work for Islamic stocks, but are stock characteristic-dependent, that up and down phases of the market offer different profits, and that there is a January effect on profits. We also find that the market risk factors - namely, excess market returns, value, size, and betting-against-beta factors - and macroeconomic risk factors do explain profits. We conclude that the profitability of Islamic stocks is merely compensation for risks and is not due to mispricing.