Stock market strategies reveal motivations based on religious holidays: “Sell Rosh Hashanah, Buy Yom Kippur”

Ever since the idea of the stock market took root in the minds of men and women, there have been many strategies investors have used to gain the upper hand and ‘beat the market.’ The incentives for these actions are well known, the one correct move on a piece of information the market is not immediately aware of can yield millions of dollars in profits. One of the strategies investors use in the United States is setting their timing on when to buy and sell during the Jewish high holidays of Rosh Hashanah and Yom Kippur.

A popular statement to appropriately describe this stock market strategy is: “Sell on Rosh Hashanah and buy on Yom Kippur.” Rosh Hashanah is the beginning of the Jewish calendar year, and it is the celebration of the creation of the Universe and of Adam and Eve by God. This holiday is celebrated on the 1st and 2nd day of the Jewish year. In 2016, this was on October 2 and 3. During the Rosh Hashanah holiday, Jews light candles in the evening, enjoy festive meals and also stop any form of creative work as a sign of respect and awe for the occasion.

Yom Kippur is arguably the most important day of the year for Jews all over the world. This is due to the fact it is the Day of Atonement when God forgives the sins of the Jews, purifies and cleanses them. It is also the day on which the Jews are freed from all the vows they may have made during the year, giving them a clean slate on which to start all over again. On this day, Jews fast and abstain from washing, marital relations and wearing leather footwear. After the 25th hour fast of Yom Kippur, Jews engage in celebration knowing their sins have been forgiven.

These two holidays are important for the stock market because of the activities of brokers and investors during this period. Dave Lutz, the head of Exchange Traded Funds (ETFs) at Jones Trading remarks, “One saying for equities on Wall Street has historically been to "sell Rosh Hashanah (red), buy Yom Kippur (Black). Sometimes even a "sell Passover" gets added to the mix. As the Jewish High Holidays are set to start, the mantra is derived from the assumption that with "many traders and investors busy with religious observance and family, positions are closed out and volume fades creating a buying vacuum.”

However, sticking closely to this and other strategies may end up hurting investors instead of making their portfolios more valuable. This can be illustrated using another axiom, “Sell in May and go away” which has usually served stock market investors well. In 2016, investors who sold their shares in May as per the axiom missed out on the 1.5% index gain during that period, as well as the 4% rise in stock prices seen since then. 

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