Live Test of the Stock Market Overnight Move Effect

Is the stock market overnight move effect exploitable? To investigate, we look at performances of two exchange-traded funds (ETF) designed to exploit the effect:

1. NightShares 500 ETF (NSPY), which “seeks to return the night performance of a portfolio of 500 large cap U.S. companies.” The benchmark is SPDR S&P 500 ETF Trust (SPY).
2. NightShares 2000 ETF (NIWM), which “seeks to return the night performance of a portfolio of 2000 small cap U.S. companies.” The benchmark is iShares Russell 2000 ETF (IWM).

Because available samples are very short, we focus on daily return correlation with the benchmark, average daily return, standard deviation of daily returns and daily reward/risk (average daily return divided by standard deviation of daily returns). We also look at compound annual growth rates (CAGR) and maximum drawdowns (MaxDD) based on daily data. Using daily total returns for NSPY, NIWM and benchmarks during June 28, 2022 through June 7, 2023, we find that: (more…)