There seems to be a confusion of three different effects:
1. Halo around the sun
While this can indeed be a closed circle, it is actually an inverted rainbow (yes, check the alignment of the colours
) Usually formed by ice clouds between observer and sun.
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2. (Polarized) reflection of the light distortion around the aircraft (Glories)
While this might seem like a rainbow from close up, it is not. Usually combined with the aircraft shadow in the center it becomes smaller as you approach the reflecting layer. Can also be observed in mountainous environment (= without aircraft).
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3. Rainbow
Caused by raindrops refracting light. Usually cut off by the horizon it can rarely be seen in a full circle from altitude during early or late hours. It can on occasions even be seen on ground, when its bottom half is completed by wet grass
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