L'Chaim: Jewish holidays and stock market returns

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT)

Managerial Finance

L'Chaim: Jewish holidays and stock market returns Jamshid Mehran Alex Meisami John R. Busenbark

Article information:

To cite this document: Jamshid Mehran Alex Meisami John R. Busenbark, (2012),"L'Chaim: Jewish holidays and stock market returns", Managerial Finance, Vol. 38 Iss 7 pp. 641 - 652 Permanent link to this document:

Downloaded on: 24 February 2015, At: 16:16 (PT) References: this document contains references to 13 other documents. To copy this document: permissions@ The fulltext of this document has been downloaded 423 times since 2012*

Users who downloaded this article also downloaded:

Monzurul Hoque, Jayen B. Patel, (2012),"A further analysis of small firm stock returns", Managerial Finance, Vol. 38 Iss 7 pp. 653-659 Georgios Papanastasopoulos, Dimitrios Thomakos, Tao Wang, (2010),"The implications of retained and distributed earnings for future profitability and stock returns", Review of Accounting and Finance, Vol. 9 Iss 4 pp. 395-423 Pradosh Simlai, (2009),"Stock returns, size, and book-to-market equity", Studies in Economics and Finance, Vol. 26 Iss 3 pp. 198-212

Access to this document was granted through an Emerald subscription provided by 352589 []

For Authors

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit authors for more information.

About Emerald

Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.

*Related content and download information correct at time of download.

The current issue and full text archive of this journal is available at 0307-4358.htm

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT)

L'Chaim: Jewish holidays and stock market returns

Jamshid Mehran and Alex Meisami

School of Business and Economics, Indiana University South Bend, South Bend, Indiana, USA, and

John R. Busenbark

Kelley School of Business, Indiana University, Bloomington, Indiana, USA

Jewish holidays and stock returns

641

Abstract

Purpose ? The purpose of this paper is to investigate the impact of Jewish holidays on US stock market returns.

Design/methodology/approach ? The authors use event study and regression methodology to determine abnormal returns on Jewish holidays and windowed periods surrounding the day. In order to seclude the results to Jewish holidays, the authors control for several other known events that impact stock market returns. To substantiate claims of abnormal returns, the authors also use the Fama-French four-factor model to seek alpha and evidence returns on Jewish holidays.

Findings ? This study shows, during the 1990-2009 period, an increase in average daily returns 32 times greater on nine Jewish holidays than on the other trading days of the year. The demeanor of the specific Jewish holidays also influences stock market returns, as the market returns increase (decrease) on the joyous (solemn) Jewish holidays. Also, individual investors, rather than institutional investors, are a greater catalyst for the increased returns.

Originality/value ? Previous research details increased stock market returns on US holidays and several other events. However, no definable research exists on stock market returns on Jewish holidays. The findings in this paper are valuable to investors who event-trade, and are also valuable to investors and behavioral-finance researchers who seek to understand how demeanor and moods may impact buying/selling decisions.

Keywords United States of America, Stock markets, Returns, Holidays, Event study, Abnormal returns, Investor behaviour, Event returns, Market behaviour, Jewish holidays

Paper type Research paper

1. Introduction

Holidays affect the mood, demeanor, attitude, and daily experience of individuals who

observe them. This is evidenced by the overall atmosphere and tidings associated with

holidays ? whether religious, national, or cultural. Ariel (1990) and Sullivan et al.

(2001) find the US stock market experiences increased returns on holidays traditionally

observed by Americans. Abadir and Spierdijk (2011) found a positive relationship

between stock market returns and various festivities, whether religious or cultural.

This study investigates the impact of Jewish holidays on stock market returns.

While Jewish individuals comprise only 2 percent of the US population (US Census

Bureau), approximately 30 percent of the billionaires in the USA (Local News

Digest, 2010) are Jewish. Also, over 20 percent of individuals on the Forbes 400 Richest People list are Jewish (, 2010). Jewish individuals have 8.7 percent greater

Managerial Finance Vol. 38 No. 7, 2012

pp. 641-652

employment and approximately 100 percent greater median income than non-Jewish q Emerald Group Publishing Limited

0307-4358

households (Burstein, 2007).

DOI 10.1108/03074351211233104

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT)

MF 38,7

642

The motivation of this research is to determine if stock market returns are affected by Jewish holidays, as it is interesting to see the impact these holidays have, provided the relatively small number of individuals who observe them. It also seeks to determine if the demeanor of each specific holiday has any relationship with the market returns on that day. It is documented that investors' moods do, in fact, have some impact on returns. For instance, Hirshleifer and Shumway (2003) show that sunshine is significantly correlated to stock market returns, and investors are subject to conscious and subconscious decisions that influence investment decisions.

Another known factor to affect stock market returns is lunar phases. Yuan et al. (2006) review lunar phases and stock market returns and show there is a decrease in return of 3-5 percent on a seven day window around a full moon, as opposed to days surrounding a new moon. This is important because many of the Jewish holidays (or feasts) studied here begin on a full moon. The differences here are that some of the Jewish holidays do not overlap with the full moon and this focuses more on one to three-day average returns around the holiday, whereas Yuan et al. (2006) consider longer windows.

2. The meaning of each Jewish holiday The holidays considered in this paper are as follows.

Purim is a happy holiday. It is typically celebrated with a carnival, special food made only for that day, a costume party, a triangular, and adult beverages. The holiday is a reflection on the Israelites' deliverance from a tyrannical leader. Jewish individuals believe their ancestors avoided a plot from a leader to annihilate them, while living in Persia. This dates back to the Biblical book of Esther, and the day on which the holiday occurs is said to be the day the leader initial chose to exterminate their kind. Date range: typically early to mid March ? 14 Adar.

Passover is another happy holiday that represents freedom from slavery. The celebration of the day is somewhat popular and cerebral and thought-provoking as Jewish people are encouraged to discuss their history and ancestry. Historically, this holiday signifies atonement through sacrifice. Jewish individuals believe God instructed those who did not wish to receive a visit from the Angel of Death to place the blood of a sacrificial lamb over their front door. Thus, the term Passover, as the Angel passed over the residences who obeyed this command. Date range: typically early to mid April ? 5 Nisan.

Shavuot is a joyous holiday commemorating what the Jewish believe to be the day God provided the Torah to the Israelites who assembled at Mount Sinai. While this holiday is not explicitly in the Bible, Jewish individuals believe it is tied to Passover and the Bible refers to it as the Day of First Fruits. Date range: typically mid to late May ? 6 Sivan.

Rosh HaShana represents a new year in accordance with agriculture which is grown at that time. It is neither overtly celebratory nor solemn. It is commemorated with a ritual meal followed by a religious service. Date range: typically mid to late September ? 1 Tishrei.

YomKippur and the days following Rosh HaShana leading to Yom Kippur are solemn. These days are for the reflection on and atonement for sins. During this time, those of Jewish faith ask for forgiveness of sin from God and their fellow man. This is the most important holiday for many members of the Jewish faith and is typically observed seriously with

a solemn demeanor. Jewish individuals do not allow themselves to experience physical Jewish holidays

pleasures during this time, either, as the day is meant to be a holy period of repentance of sin. Date range: typically mid September to early October ? 10 Tishrei.

and stock returns

Sukkot is a celebratory harvest festival translated from the Feast of Tabernacles. The

tabernacle (or Sukkah) is placed in the home of Jewish individuals and becomes the

centerpiece, as it represents a time when Israelites wandered the desert. It is a time for

Jewish people to place emphasis on charity and giving to others. The day is derived from

643

Talmudic times and is joyous. Date range: typically anytime in October ? 15 Tishrei.

Simkhat Tora and Shemini Asteret are joyous holidays as they represent

completion of the cycle readings from the Torah. During this time, a large party is

thrown and almost all temples participate in celebrating with adult beverages. Date

range: typically anytime in October, following Sukkot ? 22 and 23 Tishrei.

Khanukka is known as the Festival of Lights. It commemorates the rededication of the

Holy Temple in Jerusalem. The holiday is celebrated by lighting a candle on the Menorah

for each of the eight days in the holiday. There is also a larger candle, called the Shamash,

which is meant to be a functioning light, as the others are symbolic and not meant to be

used. It is part nationalist and part religious as it is a post-Biblical holiday. It commemorates

a miracle and winter solstice. Many non-observing Jewish people believe this is the most

significant Jewish holiday, and it is observed by a joyous celebration accompanied with a

gift exchange. Date range: typically anytime in December ? 25 Kislev.

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT)

3. Literature review Ariel (1990) and Sullivan et al. (2001) studied holiday-effects on stock market returns. They find on the days immediately preceding an American holiday, the daily returns are approximately 0.38 percent greater in an equal-weighted index and even greater in a value-weighted index. Ariel concludes increased stock returns near American holidays are caused neither by other events, such as the January-effect or weekend-effect nor by market specialists.

Hirshleifer and Shumway (2003) studied investors' mood through reviewing sunny days ? or days typically associated with good moods. By observing traders' behavior, they conclude that investors would have marginally benefited from trading on sunny days. However, after controlling for other variables and including transaction costs, their findings are somewhat inconclusive regarding the extent to which sunshine-based trading is beneficial. Hirschliefer and Shumway (2003) provide evidence that investors are subject to various conscious and subconscious mood biases when making investment decisions. Yuan et al. (2006) studied lunar phases and stock market returns and found that there is a decrease in return of 3-5 percent per annum on a seven day window around a full moon, as opposed to days surrounding a new moon.

The Monday-effect (Keim and Stambaugh, 1984) shows decreased market returns on Mondays and high positive correlation between returns on Friday and Monday, and this may have an impact on stock market returns on Jewish holidays. The day-of-the-week effect, where the authors document different returns associated with each day of the week (Berument and Kiymaz, 2001), may also have an impact on stock market returns on Jewish holidays. The negative returns associated with days near a full moon must also be controlled (Yuan et al., 2006). These factors are all controlled in the regression computations. The January-effect (Haug and Hirschey, 2006) is irrelevant here, since none of the Jewish holidays in the sample occur in January.

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT)

MF 38,7

644

4. The purpose of this study and hypotheses The purpose of this study was to analyze market returns to determine whether on Jewish holidays investors have behaved in a pattern as such to consistently influence average daily stock market returns. Inspired by the facts about Jewish individuals' economic success, surveys, and existing literature that suggests the stock market is affected by traditional holidays we test three hypotheses:

H1. Stock market returns are significantly influenced by Jewish holidays.

Each of the Jewish holidays conveys various emotions: some joyous and some solemn. There are nine major Jewish holidays in each year. Purim, Passover, Sukkot, Shavuot, Simkhat Tora, Shemini Asteret, and Khanukka are all joyous. Rosh Hashana is somewhat neutral and Yom Kippur is solemn:

H2. Stock market returns are affected by investor sentiment: the mood of specific Jewish holidays, as joyous or solemn, have a positive or negative effect on the stock market.

We also seek to determine who is influencing the stock market on Jewish holidays. Because individual investors are more likely to react emotionally and invest accordingly:

H3. Individual investors have a greater influence than institutional investors.

5. Data and methodology Daily market returns (from the S&P 500) for a period of 20-years, from 1990 to 2009, were computed and placed into two categories: Jewish holiday and non-holiday. Then the average daily returns, per year, on nine Jewish holidays and all other days were calculated (Table I). Next, the average daily return on Jewish holidays for the windows of 2 7 through 2 1 days, 2 3 through ? 1 days, and 2 1 through ? 1 days, relative to the holiday were determined.

Also compiled is data of similar nature to that of the returns over the 20-year period, except substituting daily returns with percent change in volume from the previous day. This allows us to analyze how typical daily volume behaves compared to volume on Jewish holidays.

The closing prices and volumes are from the S&P 500 and were retrieved on Yahoo Finance, adjusted from dividends and stock splits. Then, percent change in price and volume from the day prior is computed. These figures are then averaged into the two categories of Jewish and non-Jewish holidays (Table I). Per annum, nine holidays are used to average the daily return for Jewish holidays and each remaining trading day is used to average the non-holiday daily return (typically 245 days). When the holiday did not occur on a trading day, the closest following trading day was used.

In determining the returns based on the windowed periods (Table II), the daily returns for the specified time window and for each holiday are averaged, and then calculated as an overall average for the entire sample period (1990-2009), as well as per decade: 1990-1999 and 2000-2009. Similarly, the average daily return on each specific holiday is computed using the same three time periods (Table III). All of this will be explained is the forthcoming results section of the study.

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download