The Grandmother Of All Market Anomalies Part II: The Overnight Drift

Victor Haghani profile picture
Victor Haghani


  • This article answers the puzzle posed in last week's post, "The Grandmother of All Anomalies," as to what investment in AAL generated a 100% compound return since 6/2010.
  • The tendency of stocks popular with retail investors and active day-traders to make more than 100% of their return at night is a powerful challenge to the Efficient Markets Hypothesis.
  • The effect is also seen at the broad stock market level, and two ETFs were launched this week to try to benefit from this phenomenon.

Plane lifting off from runway at dusk

night-time = takeoff!

Digital Vision./DigitalVision via Getty Images

In an article posted last week on Seeking Alpha here, I offered the chart below as a puzzle asking what trading strategy in American Airlines (NASDAQ:AAL) would generate those returns and promised an answer and a link to a research note discussing the topic in more detail soon. This article gives the answer and also where to go for a deeper dive.

AAL overnight vs intraday

Yahoo Finance

The answer is: The blue line represents the growth of $1 invested in AAL shares only when the markets are closed, so buying in the closing auction and selling in the opening auction the following morning. And the red line represents being long AAL only when the market was open over that period, buying at the open and selling at the close. The growth assumes executions with no transaction costs or market impact.

Combining a long overnight with a short during the day would have grown $1 to $7,020 over the period, for a 100% annual return - not too shabby!

This effect was not confined to American Airlines shares. The table below shows the returns that would have been generated (excluding trx costs) for a number of well-known stocks and ETFs: (AMC), (OTC:GBTC), (GME), (CZR), (JBLU), (NCLH), (UAL), (CCL), (BA), (ALK), (DAL), (MGM), (ARKK), (LYFT), and (XBI).

Stocks earning high (low) returns overnight (intraday)

Yahoo Finance

The overnight drift in the broad equity market, as seen in the S&P 500 (NYSEARCA:SPY), is likely driven to a large degree by the very strong Overnight Drift in stocks which are similar in character to those in the table above, which are referred to as "Attention Stocks" due to the intense retail interest in them.

The "Overnight Drift" has received a fair amount of attention lately (a few articles have noted it also has been present in Bitcoin (BTC-USD)), and there were even two ETFs launched a few days ago by the ETF sponsor NightShares that are specifically aimed at delivering the returns of the S&P500 and the Russell 2000 in the night-time, with tickers: (NSPY) and (NIWM).

If you want to take a deeper dive, here is an article I co-authored with Rich Dewey and Vlad Ragulin on the topic, also available on SSRN here.

The Overnight Drift is perhaps the largest market anomaly ever uncovered, and may indeed warrant the title "Grandmother of All Anomalies" raising Gene Fama's claim that Momentum was the "Mother of All Anomalies" by one generation!

This article was written by

Victor Haghani profile picture
Victor Haghani has spent 30 years actively involved in markets and financial innovation. He started his career in 1984 at Salomon Brothers, in research and then in the Bond Arbitrage group run by John Meriwether. Victor was a founding partner of LTCM. After a 10 year sabbatical from the investing business, Victor founded Elm Wealth ( in 2011 to help investors manage their savings in an efficient and disciplined manner, and to capture the long-term returns they ought to earn.Victor has published research on a range of financial topics, but his main interest has been on trade sizing and Portfolio Choice and Lifetime Consumption. His most popular lecture is a TEDx talk titled "Where are all the billionaires, and why should we care?"

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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