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The “night effect” references the strategy of buying the S&P 500 at the close and selling it at the next day’s open every single day. From 1991 through 2021, the S&P 500’s overnight session delivered a cumulative return of more than 1,700%, while the intraday sessions delivered a negative cumulative return.
Backtests of the strategy have shown historical outsized performance
A body of academic research has backed up the strategy, showing that most — if not all — of the stock market’s gains over the past 30 years have been delivered during the overnight trading sessions rather than during the day. A New York Fed report from 2021 on the overnight effect said, despite the 24 hour nature of the market, returns do not accrue linearly over the 24 hours.
