The short trading day anomaly

• In two occasions, Tel-Aviv Stock Exchange restricts trade to take place till 14:25.
• Short trading days are accompanied by abnormal returns and decreased volatility.
• This anomaly is present in the main bond, stock and economic sector indices.
• Low and mid-cap indices outperform the large-cap index during short-trading days.
• Our evidence links, indirectly, investors' mood to security returns and volatility.

The psychological literature indicates that people's mood affects their choices and judgments. We find that short trading days around holidays on the Tel Aviv Stock Exchange are accompanied by positive abnormal returns and reduced volatility in returns. This anomaly is evident in the main stock indices, as well as most of the economic sector indices. The anomaly seems to be size related, with small and mid-cap indices producing abnormal returns. In addition, the volatility index (VIX) during short trading days tends to be lower than on normal trading days. Our findings suggest that investors can benefit from using two simple trading strategies.