Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

They say that stocks go down during the day and up at night

statmodeling.stat.columbia.edu

Post reply on HN
Print view View original

51–60 of 154 posts

Re: They say that stocks go down during the day and up at night

#51

Post by Joker_vD »

twic wrote: post #34
ale42 wrote: post #12

Earlier quoted context omitted.

You can keep stocks only for milliseconds if you wish... (see e.g. https://en.wikipedia.org/wiki/High-frequency_trading ). And for the less extreme version there's day trading ( https://en.wikipedia.org/wiki/Day_trading ) where you sell all your positions before the market closes (basically you try to speculate on intra-day changes of the stocks, so you keep them from minutes to hours). > Or is this the difference be…

I don't think trading is the same as speculating. To me, speculating is making big directional bets, eg "I think oil is underpriced right now, so i am going to buy loads of oil futures, then hope that in three months i can sell them at a much higher price". Whereas trading is usually much shorter-term and less directional, eg "I think French government bonds are overpriced relative to German government bonds right no…

Yeah, some people use "trading" and "speculating" in the exactly opposite way than you do. Some equate speculating and trading entirely: a trader is someone who buys something not for personal use but for further resale, and of course they hope to sell at a higher price, duh.

Re: They say that stocks go down during the day and up at night

#52

Post by Panzer04 »

tristanj wrote: post #43

There are several explanations for this phenomena: * The largest moves in price occur after quarterly earnings announcements, which are released after-hours. Same with other material announcements. * Prices are more volatile after-hours because there are fewer market participants. Because the order book is smaller, the same sized trade will have a larger effect on price after-hours compared to during trading hours. *…

Night is generally just longer too, so you're taking on more risk regardless of liquidity as well (more time holding the stock, more time for good/bad news, on average you get rewarded for that risk)

Re: They say that stocks go down during the day and up at night

#53

Post by Panzer04 »

dTal wrote: post #22
helsinkiandrew wrote: post #19

There's a few (often contradictory) explanations for this. My favourite is: Things that can be sold quickly are safer (because you can sell them if bad news comes out) so are worth less than less liquid things, like holding stocks when the market is closed. So by holding stocks overnight you are being payed for taking on the risk by those selling them before closing.

So the stock goes up overnight because of the risk that... the stock will go down overnight? Surely if the risk was real, the stock would actually go down sometimes, and cancel out the "free lunch", and on average there would be no effect to explain!

"Risk" as markets consider it is more about volatility. The higher the volatility, the more likely you are to make (or lose) money. People being as they are, volatility is usually perceived negatively and it causes people to be less willing to pay for volatile assets.

Look at the lengths people will go to for a nonvolatile risk-free return in bonds or bank accounts - but they know they can only lose a few percent if things go wrong (eg. interest rate rises).

If you take that volatility risk, you are rewarded for it with higher returns, on average :)

Re: They say that stocks go down during the day and up at night

#54

Post by vitus »

united893 wrote: post #15

YOu're graphing a random walk with a single black swan event (2008 crash). A more honest graph would just have the day/night delta mapped out, not integrated in.

Indeed. I pulled the data and mostly reproduced the results when starting on Jan 1, 1990 (I got 1/20 of a penny for day trading, but "only" somewhere in the $600-650 range for overnight trading, depending on the choice of end date. Close enough to proceed with additional analysis, IMO.

If instead I pick my starting point as Jan 1, 2012, I see $1.15 for day trading vs $2.24 for overnight trading. (Note that there was again another black swan event in Feb-March 2020, before which point day trading was actually doing better than overnight trading.)

Tracking deltas (well, day-over-day multipliers) as you suggest since 1990 shows that the two shapes are qualitatively more similar (although day trading is more volatile):

- 0.1st percentile: day trading: 0.803 vs overnight trading: 0.871

- 1st percentile: day trading: 0.932 vs overnight trading: 0.960

- 99th percentile: day trading: 1.059 vs overnight trading: 1.052

- 99.9th percentile: day trading: 1.189 vs overnight trading: 1.222

Re: They say that stocks go down during the day and up at night

#55

Post by toyg »

twic wrote: post #28
TeMPOraL wrote: post #17

Earlier quoted context omitted.

> I am only left with one question which I did not find answered anywhere yet - what exactly does day and night mean in the context of the whole world trading? While we're at it, I have a related question: why do the exchanges even "open" and "close"? Surely in our globalized digital economy, it's not just "day" and "night" that are meaningless, but the very concept of "opening hours" itself.

Historically, it's because exchanges were real places that people went to, and it would be expensive and pointless to run them all night. These days, there is a trend towards opening hours getting longer (eg [1]). But there is still value to limited hours. Off the top of my head: 1. Liquidity gets concentrated. If there is a fixed amount of end-user demand (inflows into pension funds, oil production to hedge), then s…

> You'd need six people if trading was round the clock, and those people aren't cheap.

That's not a good argument. If there were more openings for that kind of position, more people would apply, and average remunerations would get lower.

The real problem is that this would effectively distribute wealth (and access to wealth) more widely, and the ruling classes can't have that as a matter of principle.

Re: They say that stocks go down during the day and up at night

#56

Post by jjoonathan »

vjk800 wrote: post #44
TeMPOraL wrote: post #17

Earlier quoted context omitted.

> I am only left with one question which I did not find answered anywhere yet - what exactly does day and night mean in the context of the whole world trading? While we're at it, I have a related question: why do the exchanges even "open" and "close"? Surely in our globalized digital economy, it's not just "day" and "night" that are meaningless, but the very concept of "opening hours" itself.

The world of finance is full of anachronisms like this. Exchanges are also closed on various bank holidays which are different in every country.

It's not an anachronism. Liquid markets behave verrry differently from illiquid markets.

In liquid markets, "AAPL is $141.23" makes sense. It means that you can expect to buy and sell almost as much AAPL as you want at very close to that price because there are loads of buyers and sellers near that price. You can pretend that AAPL stocks have a price like a lamp at home depot: "I would like 2 AAPL please" is a safe thing to say.

In illiquid markets, "AAPL is $141.23" does not make sense. "I would like 2 AAPL please" is not safe at all. There are bids and offers, but not necessarily a lot of them, and not necessarily near each other. If you were to place the "2 AAPL please" order (or something related like "$500 of AAPL please"), you might find that you have purchased 1 AAPL for $141.23 and 1 AAPL for $299.57 because there was a big gap in the order book. The price abstraction completely breaks down and you have to "haggle" with bids and offers directly.

"Ok," you might say, "liquidity is important, but surely we can just let the bots provide liquidity at night?" The problem is that markets are adversarial and bots can't really deal with "attacks" as well as humans (or at least the humans staking the money don't trust them to). There is all sorts of craziness that a market-making bot can't handle, and if you encourage people to rely exclusively on market-making bots then they can be taken advantage of (oh no, AAPL is down 50%, better sell, wtf, price shot right back up, rage).

It's safer and smarter to just have everyone agree on convenient blocks of time to crowd into the market. During those periods of time the market can be assumed liquid. The price abstraction works.

"But I'm a big boy and I want to live in the danger zone, let me trade at night!" Go right ahead. It's not only possible, it's readily available and people do it all the time. You can probably request some degree of after-hours trading from your brokerage right this minute. It's usually pretty easy -- usually you just have to ask for them to enable permission and promise that you know what a limit order is. Usually market orders are disabled, too, because they know that plenty of people would hit "accept," shoot themselves in the foot, and complain anyway :)

Re: They say that stocks go down during the day and up at night

#57

Post by logicalmonster »

tristanj wrote: post #43

There are several explanations for this phenomena: * The largest moves in price occur after quarterly earnings announcements, which are released after-hours. Same with other material announcements. * Prices are more volatile after-hours because there are fewer market participants. Because the order book is smaller, the same sized trade will have a larger effect on price after-hours compared to during trading hours. *…

Another reason is that the circuit breakers that halt wild stock movements during the day don't apply in after hours trading.

Re: They say that stocks go down during the day and up at night

#58

Post by brmgb »

astrange wrote: post #50
brmgb wrote: post #26

Earlier quoted context omitted.

It’s just parasitism on top of the legitimate activities of the market (capital allocation). People who benefit from it (market administrators, traders) like to pretend it increases the liquidity of the market and that it’s a good thing. How you appreciate this argument generally directly depends of how much you stand to gain from it being accepted.

HFT/market making is good for retail investors. Otherwise you'd have a lot more trouble and higher fees investing eg $100 at a time.

Yeah, yeah, I know the drill lower fees, faster price discovery, better liquidity. You will have a hard time convincing me any of these benefits are worth tolerating the damage speculations wreak like clockwork every ten years or so but I know I am on the losing side of this battle.

Re: They say that stocks go down during the day and up at night

#59

Post by helsinkiandrew »

dTal wrote: post #22
helsinkiandrew wrote: post #19

There's a few (often contradictory) explanations for this. My favourite is: Things that can be sold quickly are safer (because you can sell them if bad news comes out) so are worth less than less liquid things, like holding stocks when the market is closed. So by holding stocks overnight you are being payed for taking on the risk by those selling them before closing.

So the stock goes up overnight because of the risk that... the stock will go down overnight? Surely if the risk was real, the stock would actually go down sometimes, and cancel out the "free lunch", and on average there would be no effect to explain!

Sometimes it does go down - I think the linked article says you need to be buying and selling billions of dollars of stocks for a long time to make the profit.

But another reason is that people are selling it before close, which lowers the price then buy again on open - which increases the price. Many day traders will close out their trades at the end of the day and start again the next day so they can't loose anything overnight, although they can't gain anything either - they're willing to loose that for the peace of mind.

Re: They say that stocks go down during the day and up at night

#60

Post by magwa101 »

tristanj wrote: post #43

There are several explanations for this phenomena: * The largest moves in price occur after quarterly earnings announcements, which are released after-hours. Same with other material announcements. * Prices are more volatile after-hours because there are fewer market participants. Because the order book is smaller, the same sized trade will have a larger effect on price after-hours compared to during trading hours. *…

[dead]
Post reply on HN