Jewish Holidays Affect Stock Market

Newswise — Does the old Wall Street adage “Sell Rosh Hashanah, Buy Yom Kippur” yield returns? Yes, say researchers at Nova Southeastern University in Fort Lauderdale, Florida, who have studied the “Jewish Holiday Effect.”

"Observant Jewish traders represent a small proportion of all market participants but, at the margin, their withdrawal during the High Holy Days thins out the market, increases volatility and risk, and may discourage others from trading as well, thus creating a snowball effect,” says Dr. Pan Yatrakis, professor of finance and economics, who co-authored the study with Dr. Albert Williams, assistant professor of finance and economics.

“When enough traders sell off stocks before Rosh Hashanah and buy them back after Yom Kippur, their behavior creates predictable patterns and could form the basis of trading strategies. If stocks are sold short before Rosh Hashanah and bought back later after Yom Kippur, then you could see an abnormal return."

Yatrakis and Williams studied daily closing values for the Dow Jones Industrial Average three trading days before Rosh Hashanah and the three trading days after Yom Kippur. They collected values from the 102-year period between 1907 and 2008.

Their analysis found that if traders sell at Rosh Hashanah and buy at Yom Kippur, the profit seems to work out at an abnormal return of one percent. That is, one percent more than what the market would predictably provide.

“So, if you were to sell one million dollars’ worth of stock around Rosh Hashanah and then buy back those stocks at Yom Kippur, you should make about $10,000 profit,” Williams says.

This year, Rosh Hashanah starts on Sept. 28, and Yom Kippur is on Oct. 7.

“That’s one percent profit in a little over a week,” Williams says. “Of course, there’s no guarantee here, but we looked at 100 years of data and it seems to hold.”

The biggest surprise, he said, was finding that there was an abnormal return of one percent “when the whole world knows when Rosh Hashanah and Yom Kippur will happen.”

“It goes against the Efficient Market Hypothesis, which implies that the market knows this will happen so you shouldn’t be able to profit from it,” Williams said. “But here that doesn’t seem to be the case, so the market is not as efficient as we think.”

The study, “The Jewish Holiday Effect: Buy Rosh Hashanah, Sell Yom Kippur,” was published in a 2010 issue of Advances in Business Research.