The Stock Market Gains More When It’s Closed Than Open. It’s Literally Night and Day. – Barron’s

Buying the market close and selling the open is more profitable than buying the open and selling the close.

Barron’s Staff

If only traders could make money in their sleep. Well, it turns out, that’s exactly when most of the money in the market is made.

According to data from Bespoke Investment Group, a strategy of buying the SPDR S&P 500 exchange-traded fund (ticker: SPY) right before the close each day and selling at the following day’s open would have trounced the opposite strategy—buy at the open, sell at the close—since the ETF’s inception in 1993.

And not by a little: Over those 30 years, the after-hours strategy would have returned some 850%, versus a 10% loss for the intraday strategy, per Bespoke. The night effect holds true for nine of 11 S&P 500 sectors, is stronger for small-caps, and even works for Bitcoin
—despite the cryptocurrency trading 24/7. The after-hours returns are less volatile over the long term than the regular hours returns as well.

Why does all the positive action occur between 4 p.m. ET and 9:30 a.m. ET? It’s likely a confluence of reasons. A lot of the positive news that boosts stocks tends to land after hours, such as positive earnings results, M&A announcements, or economic data releases. Bid/ask spreads are wider outside of regular market hours, exacerbating moves. Asian and European traders get a first look at the day’s news and resolve some of the daily uncertainty. And there are just more hours that the market is closed than open—17 and a half versus 6½.

There’s a brand-new pair of exchange-traded funds aiming to give investors easy exposure to the nighttime effect: the NightShares 500 ETF
(NSPY) tied to the S&P 500 and the NightShares 2000 ETF (NIWM), tied to the Russell 2000. Both launched in late June and charge a 0.55% fee.

The ETFs hold cash and Treasuries during market hours and buy futures on the SPY or IWM close to 4 p.m. They sell those futures shortly after 9:30 a.m. the next trading day.

“It just blows my mind how different these two streams are, both in terms of return and volatility,” says Bruce Lavine, CEO of NightShares.

Not always, though. Since the two ETFs launched, the after-hours strategy is behind the intraday strategy. And there’s still not just much cash in the funds, just $3.8 million and $2.1 million, according to FactSet, which means investing in them might be riskier than an ETF with more than $1 billion in assets under management.

While the overnight anomaly is fascinating, it’s still not quite within reach of the average investor.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com

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