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: http://dx.doi.org/10.1108/03074351211233104 Downloaded on: 24 February 2015, At: 16:16 (PT) References: this document contains references to 13 other documents. To copy this document: [email protected] 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 http://dx.doi.org/10.1108/03074351211233113 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 http://dx.doi.org/10.1108/14757701011094599 Pradosh Simlai, (2009),"Stock returns, size, and book-to-market equity", Studies in Economics and Finance, Vol. 26 Iss 3 pp. 198-212 http://dx.doi.org/10.1108/10867370910974026

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Jewish holidays L’Chaim: Jewish holidays and and stock returns stock market returns Jamshid Mehran and Alex Meisami School of Business and Economics, Indiana University South Bend, 641 South Bend, Indiana, USA, and John R. Busenbark Kelley School of Business, Indiana University, Bloomington, Indiana, USA

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 Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) 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 Managerial Finance Vol. 38 No. 7, 2012 People list are Jewish (Forbes.com, 2010). Jewish individuals have 8.7 percent greater 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 MF The motivation of this research is to determine if stock market returns are affected 38,7 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 642 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 Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) 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. and stock returns Date range: typically mid September to early October – 10 Tishrei. 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.

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, Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) 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. MF 4. The purpose of this study and hypotheses 38,7 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: 644 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 27 through 21 days, 23 through þ1 days, and 21 through þ1 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.

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) 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. Jewish holidays Non-holiday Jewish holiday Non-holiday percent Jewish holiday percent Year return (%) return (%) change volume (%) change volume (%) and stock returns

1990 20.04 0.38 1.75 5.29 1991 0.09 0.11 2.85 2.48 1992 20.01 0.08 0.50 25.85 1993 0.00 0.32 1.28 20.62 645 1994 0.00 0.18 0.98 26.61 1995 0.10 20.15 1.66 28.14 1996 0.06 0.29 12.48 28.12 1997 0.11 0.03 2.07 22.79 1998 0.12 20.57 2.02 24.97 1999 0.07 0.27 1.35 210.98 2000 20.07 0.94 3.28 212.21 2001 20.05 20.05 2.20 1.37 2002 20.12 0.53 1.58 17.16 2003 0.09 0.42 2.47 211.14 2004 0.02 20.17 1.16 23.35 2005 0.02 20.21 1.82 22.32 2006 0.02 0.23 2.09 23.62 2007 0.00 0.47 1.94 20.68 2008 20.25 1.41 3.08 217.93 2009 0.03 1.83 1.37 23.91 SD 0.09 0.55 2.47 7.39 Total (1990- Table I. 2009) 0.01 0.32 2.40 23.85 Mean daily average Notes: This table consists of data abstracted from taking the average daily return for the nine Jewish returns and percent holidays studied to compute an annual average on these nine days; the last row reflects an average of change in volume for all 20 years studied; the non-holiday category is the average daily return on all trading days that are period of January not one of the Jewish holidays in our data set; daily return is defined as P1 2 P0/P0 1990-December 2009

Holiday average return 21 day: þ1 day 27 days: 21 day 23 days: þ1 day

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

1990-1999 0.09 0.02 20.01 20.01 2000-2009 0.54 0.07 20.04 0.09 1990-2009 0.32 0.05 20.02 0.04 Notes: Average daily return; this table includes average daily returns for each Jewish holiday for every windowed period; instances when the Jewish holiday did not occur on a trading day, the next Table II. following trading day was used for the “plus 1” requirement Window returns

Ordinary least squares regression and the Fama-French four-factor model analyses are used to determine if there is a relation between Jewish holidays and market returns. Further, the day-of-the-week effect is controlled. Dummy variables are assigned to each day of the week and to Jewish holidays. In the following regressions, JH represents the dummy variable for Jewish holidays. Notations MON, TUES, WED, THUR represent Monday, Tuesday, Wednesday, and Thursday. Each specific holiday’s dummy variable MF Holiday 1990-2009 (%) 1990-1999 (%) 2000-2009 (%) 38,7 Purim 0.60 0.41 0.79 Passover 0.53 20.07 1.14 Shavuot 0.15 0.17 0.13 Rosh HaShana 0.35 20.07 0.76 Yom Kippur 20.23 0.16 20.61 646 Sukkot 0.74 20.33 1.80 Shem/Sim 0.19 0.02 0.37 Khanukka 0.14 0.14 0.13 Market average 0.01 0.05 20.03 Notes: This table shows the average daily return for each specific Jewish holiday and on non-Jewish Table III. holidays; means are then taken from the average daily returns per each decade and the period as a Specific holiday returns whole

is notated by the first three letters of the holiday name (e.g. SUK for Sukkot). For each of the dummy variables, a “0” is assigned if that day does not correspond with the respective variable, and a “1” is assigned if it does. The daily stock market returns used for this purpose are the natural log of the return (ln(P1/P0)). The models are as follows: Model 1: Rt ¼ a þ b0ð JHÞ Model 2:

Rt ¼ a þ b0ð JHÞþb1ðJHxMONÞþb2ðJHxTUESÞþb3ðJHxWEDÞ þ b4ð JHxTHURÞ Model 3:

Rt ¼ a þ b0ðPURÞþb1ðPASÞþb2ðSHAÞþb3ðROSÞþb4ðYOMÞþb5ðSUKÞ þ b6ðSIMÞþb7ðSHEÞþb8ðKHAÞ In the above models, the daily returns constitute the dependant variable. In Model 4, “x” is used to show the interaction between two dummy variables (Table IV). Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) In addition, more factors are investigated to help further determine if Jewish holidays elicit an impact on stock market returns. The Carhart four-factor model is utilized (derived from the Fama-French three factor model) to provide a more robust set of data to further evidence a Jewish holiday effect. Each of the components included in this model are leveraged as an individual factor, to be evaluated in three dimensions; first as a total regression determining the a of the returns on Jewish holidays, second by computing the overall returns associated with deciles related to the factor on Jewish, and third by employing a regression to calculate the significance of the findings. Results from deciles that are derived from each factor are computed. Each decile’s portfolio is composed of stocks traded in US markets: NYSE, AMEX, and NASDAQ and were obtained from CRSP. Decile 1 represents a portfolio of the largest market capitalization stocks, lowest book-market ratio, or lowest momentum, while decile 10 represents the smallest size and largest book-to-market and momentum. The data reported in Table V is the annual average of returns for the nine Jewish holidays, per decile. Also, an OLS regression is employed using the following models to Jewish holidays Model 1 t-statistics Model 2 t-statistics Model 3 t-statistics and stock returns a 0.000 0.746 a 0.000 0.747 a 0.000 0.741 JH 0.002 *** 3.116 JH 0.003 * 1.947 PUR 0.006 ** 2.186 JHxMON 20.000 20.296 PAS 0.005 * 1.953 JHxTUES 0.002 0.628 SHA 0.001 0.566 JHxWED 20.003 20.970 ROS 0.003 1.230 647 JHxTHUR 20.005 * 21.894 YOM 20.002 20.994 SUK 0.006 *** 2.612 SIM 0.000 0.148 SHE 0.003 1.444 KHA 0.001 0.443 Notes: Significant at: *10, **5, and ***1 percent levels, respectively, using a two-tailed test; this table reflects regression data based on dummy variables provided for each weekday and on the day of a Jewish holiday; returns were calculated as (ln(P1/P0)) to account for normal distribution; the models Table IV. which feature the regression equation are (JH represents the dummy variable for Jewish holidays, OLS regression of market MON-THUR represents the dummy variable for each day of the week, and each specific holiday is return with weekday notated by the first three letters in its name accordingly) dummy variables

Decile 1990-2009 annual JH return (%)

1 0.08 2 0.11 3 0.12 4 0.16 5 0.19 6 0.20 7 0.23 8 0.24 9 0.29 10 0.32 Notes: This table consists of data based on stock capitalization; ten portfolios, based on size, are constructed using data from US stock markets: NYSE, AMEX, and NASDAQ; returns for each of these portfolios are computed and reported based on an annual daily average on Jewish holidays; individual Table V. Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) decile portfolios are created for each exchange group, the largest capitalization being in decile 1 and Stock returns on the smallest capitalization in decile 10 Jewish holidays by decile

determine the significance of the returns on Jewish holidays for each decile in Table VI. In this regression, JH represents the dummy variable for the Jewish holidays and it is assigned a “0” if the day is not a Jewish holiday and a “1” if it is. For this paper, the returns are defined as (ln(P1/P0)) for each decile. The Fama-French four-factor model used is:

RJH 2 Rf ¼ a þ bðKm 2 Rf ÞþbðSMBÞþbðHMLÞþbðUMDÞþ1 where:

RJH is the average daily market return, per annum, for the Jewish holidays.

Rf is the rate of return for a risk-free proxy. MF 38,7 Decile bSMB (JH) t-statistics bHML (JH) t-statistics bUMD (JH) t-statistics 1 0.039 0.555 0.208 ** 2.177 0.279 * 1.739 2 0.064 0.697 0.230 *** 2.643 0.267 ** 2.107 3 0.072 0.757 0.245 *** 2.916 0.273 *** 2.589 4 0.123 1.321 0.258 *** 2.910 0.275 *** 2.844 648 5 0.141 1.491 0.288 *** 3.247 0.301 *** 3.291 6 0.157 * 1.806 0.273 *** 3.214 0.249 *** 2.929 7 0.190 ** 2.172 0.224 *** 2.718 0.266 *** 3.255 8 0.201 ** 2.236 0.293 *** 3.128 0.251 *** 3.084 9 0.245 *** 2.803 0.250 *** 2.800 0.247 *** 2.857 10 0.282 *** 3.211 0.308 *** 3.101 0.221 * 1.942 Notes: Significance at: *10, **5, and ***1 percent levels, respectively, using a two-tailed test; this table consists of data based on stock capitalization, book-to-market ratio, and momentum; ten portfolios, based on size, ratio, and momentum are constructed using data from US stock markets: NYSE, AMEX, and NASDAQ; individual decile portfolios are created for each exchange group, the largest capitalization, smallest book-to-market, and lowest momentum being in decile 1; the smallest capitalization, largest book-to-market, and highest momentum are in decile 10; the following Table VI. regression was then used for each portfolio: Rdt ¼ a þ b0(JH); JH is a dummy variable to identify Jewish holiday effect whether the specific day is a Jewish holiday or non-Jewish holiday and returns were calculated as and Fama-French factors (ln(P1/P0)) to account for normal distribution

Km 2 Rf is the average daily rate of return, on the market, for all days minus the risk-free rate. SMB is the small minus big proxy (size effect). HML is the high minus low proxy (book-to-market effect). UMD is the momentum proxy. In the regression, the dependent variable is the daily return for the S&P 500 on Jewish holidays minus the risk-free rate on that day. The four independent variables, extracted from the Kenneth French, are as follows: (1) excess return on the value-weighted market portfolio (rate of return on the

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) value-weighted CRSP index minus the risk-free proxy); (2) difference between the return of value-weighted portfolios of small and large market capitalization firms’ stocks; (3) difference in returns of valued-weighted portfolios of high and low book-to-market firms’ stocks; and (4) difference in returns of stocks with high past returns minus those with low past returns (momentum).

The a is estimated y-intercept or is the abnormal return on Jewish holidays. The decile regression models used are:

RSMH ¼ a þ b0ðJHÞ RHML ¼ a þ b0ðJHÞ RUMD ¼ a þ b0ðJHÞ The return for each decile is the y-variable. While there are four factors in the initial model, this section features regressions Jewish holidays which utilize only three of the factors (SMH, HML, and UMD). The market returns and stock returns represent the first of the four factors and are already calculated in the initial regression, featured in Table IV.

6. Analysis and results The results are fairly significant, as the data indicate investor behavior manifests itself 649 to achieve higher gains on Jewish holidays than on non-holidays. The average daily return on Jewish holidays is approximately 0.32 percent, while the average daily return on non-holidays is approximately 0.01 percent. With the exception of four years, two of which were consecutive, the average daily return of the combined Jewish holidays outperformed the market daily average. In fact, with the removal of one specific holiday, the solemn holiday Yom Kippur, only in two years of the 20-year period returns on Jewish holidays would have failed to outperform non-holiday returns. Furthermore, during the market turmoil of 2008 and 2009, the market experienced much greater returns on Jewish holidays than it did in any other year during the 20-year period. Table II, then, shows average daily return for three windows (27 days, 21 day) (23 days, þ1) (21 day, þ1 day). These are around Jewish holidays for the entire sample as well as the two decade periods. None of the average returns in these window periods result in even 20 percent of the average daily return on Jewish holidays. Even more significant is the fact that the smallest window in Table II (21 day, þ1 day) experiences the greatest average daily return. This is because the influence of the Jewish holiday on the return is the greatest on the average of this period, given the smallest number of days. Accordingly, the largest window (27 days, 21 day) experiences the lowest average daily return, as the impact of the Jewish holiday is excluded from that window. The significance of Table II cannot be understated. Yuan et al. (2006) find the days around a full moon have been found to experience lower returns. Provided that Jewish holidays typically begin on a full moon, this indicates fairly different market behavior for shorter windows around Jewish holidays. Here, positive market returns around these days are observed. Table III shows that on all holidays except one, the market experiences greater returns than on non-holidays. Jewish holidays that perform especially well are the Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) holidays regarded as joyous days, such as Purim, Passover, and Sukkot. Conversely, on Yom Kippur, a holiday with a solemn demeanor, the market underperforms and experiences negative returns. This can possibly be a result of investors’ moods being a factor affecting the returns on these given days. Next, regression results are summarized in Table IV. In Model 1, JH alone is used as the dependent variable. The coefficient is 0.002 and is significant at the 1 percent level. Since the Monday-effect is vastly studied in previous literature, Model 2 includes a Monday dummy (MON). The MON dummy takes a value of “1” on Mondays or “0” otherwise. Also defined are similar dummy variables for the other days of the week. These are used to control for the effect of other days of the week through interaction of the Jewish holiday dummy and other day-of-the-week dummies. These are included to ensure the significant relationship between Jewish holidays and stock market returns is not a result of the Jewish holiday occurring on one specific day of the week. In the first two models, the coefficient for JH dummy remains positive and significant at the 1 and 10 percent level, respectively. The coefficients of other days (except Thursday) MF are insignificant. The fact that the coefficient of the Thursday dummy is negative 38,7 (significant at 10 percent) indicates that the main result (positive and significant impact of Jewish holidays on stock market) is not driven by a “Thursday-effect”. Results from Models 1 and 2 are consistent with the findings in Tables I-III and with H1. Existing literature suggests that investors’ mood does affect market returns. Hirshleifer and Shumway (2003) discuss this with a sunshine effect, and Yuan et al. 650 (2006) find lunar phases affect market returns. In Model 3, a dummy variable for each of the nine Jewish holidays is assigned. Positive and significant coefficients for the most joyous holidays, and a negative coefficient on the solemn holiday (Yom Kippur) are observed. Overall, these results support H2, which states that the demeanor of the holiday will influence stock market returns. The Jewish holiday effect related to market capitalization is examined to further substantiate if investors moods influence stock market returns on Jewish holidays. Empirical findings suggest large capitalization stocks have a greater percentage of institutional ownership than small capitalization stocks. H3 states individual investor sentiment is likely a catalyst for increased returns on Jewish holidays. To determine the relationship between stock capitalization and Jewish holidays, ten stock portfolios are used, based on market capitalization that report returns for the NYSE, AMEX, and NASDAQ. In Table V, it is found that small capitalization stocks are affected by Jewish holidays more so the large capitalization stocks. The average daily return on Jewish holidays increases from 0.08 percent in the largest market capitalization decile to 0.32 percent in the smallest. Further, the significance of the coefficient for Jewish holidays increases sequentially through each decile (Table VI). The largest capitalization decile is not significant, while significance increases through each decile to become significant at the 1 percent level in the last two deciles, using a two-tailed test. The results from Tables V and VI are consistent with H3 that individual investors, rather than institutional investors, affect returns greater on Jewish holidays. These results are consistent with those of Yuan et al. (2006). They find individual investors to have a greater influence on market returns compared with institutional investors. This also provides further evidence that investors’ mood or

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) sentiment may affect stock market returns. To provide additional evidence for H1, that the stock market experiences increased returns on Jewish holidays, the other factors in the four-factor model are leveraged (Table VI). This is to provide evidence beyond simply market capitalization. The coefficients on Jewish holidays are found to be statistically significant throughout all deciles of market returns, based on book-to-market and momentum. This, in addition to the initial findings of statistical significance of Jewish holidays on the typical market returns, confirms that the increased returns on Jewish holidays are significant across the spectrum of the entire market and for a substantial majority of participating firms. Next, the entire four-factor model is utilized to calculate the a, or excess/abnormal return, on Jewish holidays. From this, the abnormal return on Jewish holidays is found to be approximately 0.626. More, the a is significant at the 1 percent level, using a two-tailed test. The results of the regression are listed below in Table VII. This finding is also consistent with H1, and confirms the results demonstrated in Table I. Lastly, presented is the average daily percent change in trading volume for Jewish Jewish holidays holidays and non-holidays. This is computed to determine if Jewish holidays offer any and stock returns specific pattern of volume change which may attribute to the average daily returns. That is, if percent change in trading volume increases, that is a positive impact of the event. The results show trading volume on Jewish holidays does not follow the same pattern (Table I). The average daily percentage change in trading volume on Jewish holidays is negative in 16 of the 20 years, while always positive on all non-Jewish holidays during 651 the period. The overall average daily change in volume on Jewish holidays is also negative (consistent with Lee and Rui (2002) suggesting that trading volume had little to no impact on stock market returns (on Jewish holidays)).

7. Conclusions In this paper, we seek to answer to two main questions: first, do Jewish holidays have an impact on stock market returns? Second, if so, does a joyous holiday have a different impact on the market returns than a solemn holiday? Third, do individual investors have a greater impact on market returns than institutional investors (another substantiate of investor sentiment)? We find that there is a significantly positive relationship between Jewish holidays and stock market returns, which is mostly associated with joyous holidays: on all of the joyous Jewish holidays studied, the market experiences greater returns than on non-Jewish holidays while on the solemn holiday of Yom Kippur the market experiences negative, but statically insignificant returns. Apparently, investors behave in ways that reflect their mood on Jewish holidays. Using the Fama-French four-factor model, we also determine that this Jewish holiday effect is significant throughout a broad market spectrum, impacting all stocks regardless of book-to-market or momentum. More, the excess return on the Jewish holidays was statistically significant and similar results for the exact increased return were found using OLS regression methods. The returns on Jewish holidays mainly influence small windowed periods, around the holiday, as opposed to larger windows. Our results are similar to previous research stating that days around a full moon experience negative returns (Yuan et al., 2006), as

Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) that is true of the days surrounding, but not including, the Jewish holiday. On the holiday itself, returns were much greater.

Factor Coefficient p-value

a 0.626 *** 0.000 *** KM-Rf 25.233 0.003 SMB 0.634 0.789 HML 23.766 ** 0.060 UMD 25.600 *** 0.001 Notes: Significant at: *10, **5, and ***1 percent levels, respectively, using a two-tailed test; this table reflects statistics from the Carhart (Fama-French) four-factor model regression; returns were Table VII. calculated as (ln(P1/P0)) to account for normal distribution; the data for the all of the factors were Four-factor model abstracted from the Kenneth French database regression statistics MF References 38,7 Ariel, R.A. (1990), “High stock returns before holidays: existence and evidence of possible causes”, Journal of Finance, Vol. 45 No. 5, pp. 1611-26. Berument, H. and Kiymaz, H. (2001), “The day of the week effect on stock market volatility”, Journal of Economics and Finance, Vol. 25 No. 2, pp. 181-93. Burstein, P. (2007), “Jewish educational and economic success in the United States: a search for 652 explanations”, Sociological Perspectives, Vol. 50 No. 2, pp. 209-28. Haug, M. and Hirschey, M. (2006), “The January effect”, Financial Analysts Journal, Vol. 62 No. 5, pp. 78-88. Hirshleifer, D. and Shumway, T. (2003), “Good day sunshine: stock returns and the weather”, Journal of Finance, Vol. 58 No. 3, pp. 1009-32. Keim, D.B. and Stambaugh, R.F. (1984), “A further investigation of weekend effect in stock returns”, Journal of Finance, Vol. 39 No. 3, pp. 819-35. Lee, B. and Rui, O. (2002), “The dynamic relationship between stock returns and trading volume: domestic and cross-country evidence”, Journal of Banking & Finance, Vol. 26 No. 1, pp. 51-78. Sullivan, R., Timmerman, A. and White, H. (2001), “The danger of data mining: the case of calendar effects in stock returns”, Journal of Econometrics, Vol. 105 No. 1, pp. 249-86. Yuan, K., Zheng, L. and Zhu, Q. (2006), “Are investors moonstruck? Lunar phases and stock returns”, Journal of Empirical Finance, Vol. 13 No. 1, pp. 1-23.

Further reading Carhart, M.M. (1997), “On persistence in mutual fund performance”, Journal of Finance, Vol. 52 No. 1, pp. 57-82. Fama, E. and French, K. (1993), “Common risk factors in the returns on stocks and bonds”, Journal of Financial Economics, Vol. 33 No. 1, pp. 3-56. Loughran, T. and Wellman, J.W. (2011), “New evidence on the relation between the enterprise multiple and average stock returns”, Journal of Financial and Quantitative Analysis, Vol. 46 No. 6, pp. 1629-50. MacKinlay, C.A. (1997), “Event studies in economics and finance”, Journal of Economic Literature, Vol. 35 No. 1, pp. 13-39. Downloaded by ASU Libraries At 16:16 24 February 2015 (PT) About the authors Jamshid Mehran is a Professor of Finance at Indiana University South Bend. Jamshid Mehran is the corresponding author and can be contacted at: [email protected] Alex Meisami is an Assistant Professor of Finance at Indiana University South Bend. John R. Busenbark is a Graduate Student in the Kelley School of Business at Indiana University.

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