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:
THIS SECTION IS FOR MEMBERS ONLY. _________________ BECOME A MEBER TO GET ACCESS TO TRADING RULES IN ALL ARTICLES CLICK HERE TO SEE ALL 400 ARTICLES WITH BACKTESTS & TRADING RULESWe 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):
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?
Historical Market Performance During Jewish Holidays
Historical market data has shown that the period between Rosh Hashanah and Yom Kippur tends to be marked by lower returns and increased volatility. September, which typically coincides with these holidays, has historically been a challenging month for stocks, earning a reputation for poor market performance. Traders who sell around Rosh Hashanah and buy back after Yom Kippur often aim to avoid this turbulence. Data spanning several decades reveals that market downturns during this period have occurred frequently enough to influence the creation of this seasonal trading strategy, despite its uneven profitability over the long term.
Psychological and Cultural Impact on Trading Activity
The Jewish holidays of Rosh Hashanah and Yom Kippur are significant cultural observances, particularly in the New York area, which houses a substantial Jewish trading community. During these holidays, many market participants, especially those who observe the traditions, tend to step away from trading, leading to reduced trading volumes. This temporary market disengagement can contribute to decreased liquidity, increasing market volatility as fewer participants are present to stabilize prices. The cultural significance of these holidays often prompts traders to take cautious positions or square off their trades, impacting the broader market’s dynamics during these periods.
Risk and Reward: Evaluating the Sell Rosh Hashanah – Buy Yom Kippur Strategy
The “Sell Rosh Hashanah, Buy Yom Kippur” strategy has shown mixed results over the years, presenting both opportunities and risks for traders. While some data points to reduced market returns during these holidays, the overall profitability of the strategy is modest at best, with low compound annual growth rates and occasional erratic returns. This strategy tends to outperform during years of heightened market volatility or specific economic conditions but underperforms during stable periods. Evaluating this strategy requires weighing the potential short-term market protection against the relatively low long-term returns it historically generates.
Seasonal Patterns: How Jewish Holidays Affect Stock Market Trends
Examining the historical patterns of stock market performance during Jewish holidays provides valuable insights for traders. The “Sell Rosh Hashanah, Buy Yom Kippur” strategy is rooted in these seasonal shifts, with historical data revealing the potential for increased market volatility during this period. This section explores the recurring trends associated with September and October, highlighting how these holidays have influenced stock market activity and offering traders a better understanding of the strategy’s origins and efficacy.
Is the Rosh Hashanah to Yom Kippur Trading Strategy Still Relevant Today?
As markets evolve, it’s essential to assess whether historical strategies, like the “Sell Rosh Hashanah, Buy Yom Kippur” approach, remain effective. This section analyzes recent data and market conditions to determine the strategy’s continued relevance in modern trading. It also discusses how shifts in technology, trading volume, and market dynamics may impact the performance of this seasonal strategy, helping traders decide if it’s worth incorporating into their portfolios today.