Public attention to "Islamic terrorism" and stock market returns

Does public attention to Islamic terrorism affect the performance of Islamic and conventional indices? We answer this question by empirically examining the effects of US public attention to Islamic terrorism on returns of US Islamic and conventional indices between 2004 and 2017. US public attention to Islamic terrorism is measured using Google Search Volume, which reflects active public attentiveness, and media coverage, which measures passive attentiveness. We test its effect on the stock returns of Islamic and conventional indices by using difference-in-difference analysis. The results indicate that US public attention to Islamic terrorism negatively affects US Islamic indices, suggesting that investors may make amalgams between terrorism and Islamic finance. These cliches may lead them to sell Sharia-compliant assets when US public attention to Islamic terrorism is high. Taken together, our findings provide new evidence and financial implications for investors and providers of Islamic financial products.