The overnight-minus-intraday return gap in stock index ETFs and some individual U.S. stocks weakened over the past 5-10 years (1995-May 2022; 5-year rolling gross long-short returns on SPY and S&P 500 stocks; descriptive; not a trading test).
Over at least the past three decades, 100% or more of the return (0% or negative return) on a wide range of risky assets occurs when markets are closed (open). Is this overnight effect important to investors? In their June 2022 paper entitled "Night Moves: Is the Overnight Drift the Grandmother of All Market Anomalies", Victor Haghani, Vladimir Ragulin and Richard Dewey briefly review the dozen or so papers exploring this effect, mostly focused on broad stock market returns. They then take a closer look at whether the effect applies to individual U.S. stocks and discuss implications for investors. Using results of past research and overnight and intraday prices for selected exchange-traded funds (ETF) and stocks as available since the mid-1990s through May 2022, they find that:
Morning Momentum and Afternoon Reversal for Stock Returns PremiumEqual-weighted long-short deciles formed on past afternoon returns earned higher gross monthly returns than conventional 1-month reversal (0.79% vs 0.48%), while morning-return ranking matched…
Overnight Effect Across Asset Classes? PremiumOvernight (close-to-open) returns exceeded open-to-close returns for most non-equity ETFs, strongest for EMB and VNQ and absent for TLT and EFA (SACEMS ETF proxies;…
Combining Overnight and TOTM Effects PremiumA SPY turn-of-the-month close-to-open strategy (long close-to-open only during TOTM, cash otherwise; eight round-trips monthly) earned 0.0% net CAGR with -39% MaxDD at 0.06%…
