A Study of the Role of Islamic Events in the Relationship between Investor Sentiment and Stock Returns with an Emphasis on the Moderating Variable of Corporate Governance

This study intends to investigate the role of Islamic events on the relationship between investor sentiment and stock returns by emphasizing the role of corporate governance. The specific Islamic events in this study include the holy months of Ramadan and Muharram. The variables in corporate governance include the size of the board of directors, the presence/absence of CEO on board of directors, corporate auditing, the internal auditors, the financial experts’ assistance and auditors’ reports. The research sample consists of 132 companies observed over a period extending from 14/8/1392 in Solar Hijri Calendar (1/1/1435, i.e. the first of Muharram in Lunar Calendar) to 19/6/1397 (SH) (29/12/1439, i.e. the last day of Dhu al-Hijjah (LH)). In this study, Multivariate Regression Model for panel data was used to analyze the data and test the hypotheses. The research results indicate a significant difference between investor sentiment, on the one hand, and stock returns on the other during Islamic months of Ramadan and Muharram compared to other months. Corporate governance plays a moderating role in the relationship between investor sentiment and stock returns during the months of Ramadan and Muharram. In other words, corporate governance prevents investors from making sentimental decisions originating from Islamic events and affecting stock returns.