We focus on specific trading days on which investors are primed for honest behavior (Yom Kippur); the patterns found may reflect the increased awareness to honesty

The High Holidays: Psychological Mechanisms of Honesty in Real-Life Financial Decisions. Doron Kliger, Mahmoud Qadan. Journal of Behavioral and Experimental Economics, Journal of Behavioral and Experimental Economics, https://doi.org/10.1016/j.socec.2018.12.012

Highlights
•    We focus on specific trading days on which investors are primed for honest behavior
•    Returns during these ten days (High Holidays) are abnormally low; and
•    Implied volatility, as well as realized volatility estimates are abnormally high
•    These systematic patterns may reflect the increased awareness to honesty
•    We suggest a simple trading rule that investors may utilize during these days

ABSTRACT: Research in psychology has established that activation of religious ideas affects individuals’ behavior. We hypothesize that religious and honesty mechanisms activated on the High Holidays, the ten days before Yom Kippur, when people seek repentance, amplify people's anxiety and affect their financial decision-making. We find that returns during the High Holidays are abnormally low; implied volatility, measured by VIX and VXO, as well as realized volatility estimates, are abnormally high; and the abnormal increase in implied volatility overshoots future volatility. Using these results, we devise a simple trading rule that investors may consider to maximize returns during the High-Holidays period.