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Raphie Hayat and Celia de Anca

We study the effects of an Islamic label on US stock returns and the effect of this label by analysing abnormal returns of US stocks when they are added to or removed from an Islamic index. Unlike in previous research, we find that neither addition to nor deletion from an Islamic index leads to abnormal returns. This holds for short-term periods (announcement and actual inclusion date) as well as for longer periods. Furthermore, we did not find convincing evidence that addition to an Islamic index signals higher liquidity, profitability, investor awareness or lower risk. We conclude that an Islamic label for stocks does not convey any additional financial information to investors.