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2007 returns Overnight vs Day returns

Brett Steenbarger posted this interesting chart about the overnight versus the day returns on the S&P500 for 2007:

Above we see returns for the S&P 500 Index (SPY) as a function of time of day. We can see that, beginning in July, returns from the overnight session (close to open) greatly exceeded those from the day session (open to close). Indeed, it was as if the market split into two different markets: one trading overnight and one trading during regular hours.

This made it difficult to hold positions over time, as overnight moves and moves during the day tended to reverse one another. Holding short positions in stocks for more than a day trade was particularly difficult.

It is unclear whether this bifurcation of returns might be part of what tripped up many traders. The fact that the split occurred just at the time many traders reported having problems with returns, however, makes me think that those holding positions overnight and those counting on daytrades to follow short-term trends were adversely impacted.
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