Night Moves: Is the Overnight Drift the Grandmother of all Market Anomalies?

Vol. 22, No. 2, 2024
by Victor Haghani, Vladimir Ragulin and Richard Dewey

Our research in single name stocks suggests that retail trading likely explains the phenomenon of outsized overnight returns at both the level of the overall stock market, and that of individual stocks. We find that the effect exists at the index level as previously reported, but more strikingly in a suggestively clustered pattern of individual stocks returns, particularly those known as “Meme” stocks. The effect is also prominent in other investments such as Bitcoin that appeal to retail investors. This research is important for three reasons. First, Retail traders are potentially missing out on billions of dollars of returns due to mistimed trades. Second, there is speculation that the overnight effect might have implications for the long-term valuation of the entire equity market. And finally, assuming our findings are correct, this is one of the most consistent, significant and overlooked anomalies in finance.