Buy Yom Kippur

Sell Rosh Hashanah – Buy Yom Kippur (Trading Rules, Backtest And Performance)

The phrase “Sell Rosh Hashanah, Buy Yom Kippur” has been a cornerstone of trading “folklore” for decades, at least since Eisenhower was president.

Its origins trace back to a belief that September, when these Jewish holidays typically fall, is a tumultuous period for stocks. This notion is not without merit. Historical data reveals that September has often been a challenging month for the stock market, prompting traders to exercise caution and avoid excessive exposure during this time. The worst week of the year for stocks is also in September (covered in our member articles).  

Furthermore, Yom Kippur, while not an official market holiday, is observed by a significant number of people in the New York area, particularly within the Jewish community. Their absence can impact trading activity as positions are squared ahead of the holiday.

You might also be interested in our extensive library of seasonal trading strategies.

Sell Rosh Hashanah – Buy Yom Kippur Trading Strategy – trading rules and backtest

The trading rules are simple:

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We backtested the cash index of S&P 500 from 1928 until today, and we got the following equity curve (the data is not adjusted for dividends):

Sell Rosh Hashanah - Buy Yom Kippur Trading Strategy
Sell Rosh Hashanah – Buy Yom Kippur Trading Strategy

The equity curve shows that this is not a particular profitable trading strategy with erratic returns. 

The trading performance and statistics look like this:

  • Total return is 39%
  • CAGR is 0.34%
  • Time spent in the market is 2.52%
  • Risk adjusted return is 13.49%
  • Win rate is 53.12%
  • Average return is 0.39%

When President Dwight D. Eisenhower suffered a heart attack

The adage gained widespread recognition in 1955, a year etched in trading history.

On the eve of Rosh Hashanah, the Dow Jones Industrial Average closed at 483.66. A week later, it had registered a modest 0.78% gain. However, the weekend brought a shocking event: President Dwight D. Eisenhower suffered a heart attack.

As Yom Kippur commenced, the market reacted violently. The Dow plummeted by a staggering 6.54%, marking its second-largest single-day point drop at the time. Those who followed the advice to sell on Rosh Hashanah were shielded from this abrupt downturn.

Unveiling the Empirical Evidence: A Deeper Dive

Recent studies have delved into the empirical evidence supporting this phenomenon.

One such study conducted by NYU Stern analyzed the daily rates of return for the S&P 500 and FTSE 100 during Jewish holidays and found that the average returns for the holiday periods compared to the control periods never differed by more than around two-thirds of a percent.

Intriguingly, Yom Kippur exhibited a significant rise in daily return variance compared to both the S&P 500 and the FTSE, indicating heightened volatility on this day.

Empirical Evidence: Trading Volumes and Market Dynamics

Additionally, the study highlighted that trading volumes significantly decreased on both Rosh Hashanah and Yom Kippur compared to regular trading days, pointing to the diminished activity during these sacred observances. Given the introspective nature of these holidays, many traders likely choose to detach themselves from the markets. 

Similarly, according to 2017 data, in the previous 21 years, the day before Yom Kippur has often been bearish for the market.

The DJIA, for instance, advanced only 38.1% of the time, registering an average loss of 0.27%. Similarly, NASDAQ and S&P 500 have demonstrated bearish tendencies around this time, further emphasizing the potential influence of this religious observance on market dynamics. (Please incorporate images when they enhance the content.)

What does sell Rosh Hashanah buy Yom Kippur mean?

“Sell Rosh Hashanah, buy Yom Kippur” is a financial strategy advising to sell investments before the Jewish holiday of Rosh Hashanah and buy them back after Yom Kippur to potentially avoid market volatility during that period.

Key facts about Rosh Hashanah and Yom Kippur include:

  • Rosh Hashanah:
    • Celebrated on the first and second days of Tishrei, which generally corresponds to September or October on the Gregorian calendar. Commemorates the creation of the world and is a time for reflection and repentance.
    • The blowing of the Shofar, or ram’s horn, is a significant ritual during Rosh Hashanah.
  • Yom Kippur:
    • Occurs at the end of the Ten Days of Penitence, which begin with Rosh Hashanah.
    • Spent praying in synagogue to G-d to help release past sins, transgressions, and negative actions.
    • Fasting is a key aspect of Yom Kippur.

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