Trading at all times: Portfolio implications

Millions of retail investors opened brokerage accounts in the past year, and many of them have taken to day trading as a way to pass the time, keep themselves entertained, and make a little cash.

So did all this trading actually help the portfolio of the average retail investor during the months of 2020 dominated by the coronavirus?

Subscribe Button

Night is the right time.

To find out, we looked at the 100 most traded stocks by retail investors over the past year as compiled by Robinhood.

We examined how an investor would perform if he bought each share at the opening of trading each day and sold it hours after the market closed. This we called the return of the day. We then compared that to the overnight return, or what the investor would make if he bought the stock at the close, held it overnight, and then sold it at the market open.

As it turns out, the investors who traded these 100 stocks throughout the day actually did Lost An average of 0.183% in daily returns. Assuming 21 trading days per month, that equates to losses of 3.84% per month in daytime returns.

But if investors risked holding those same stocks overnight, they averaged 0.195% overnight returns, or 4.10% per month in overnight returns. And if the investor held the stock over the weekend, they would earn an average of 0.271% at the end of the week, or 1.08% per month in returns, assuming four weekends each month.

Average Returns: The 100 most traded stocks

back during the dayBack at nightBack weekend
February 14 –
December 31, 2020

What immediately stands out when we compare the current COVID-19 era to the 10 years before it is that daytime returns were much lower during the pandemic. From 2010 to 2019, the average daytime return for the 100 most popular stocks was 0.004% per day compared to -0.183% amid COVID-19.

The night return also showed a distinct trend. From 2010 to 2019, they averaged 0.042% per night. During the pandemic, it increased to 0.195% per night between February 14 and December 31, 2020.

In fact, since February, when many new investors joined the day trading game, 95% of these top-traded stocks had nighttime returns greater than daytime returns.

Tesla’s stock performance during the day, night, and weekend illustrate these larger patterns. The average investor who bought a Tesla at the open of each market day and then sold it at the close had a Loss 0.12% per day. If they hold the stock overnight, they earn an average of 0.83% per night. And if they held it over the weekend, they averaged 1.49% returns at the end of the week!

Tile The Current Issue Of Financial Analysts Magazine

There are two possible explanations for these results: either individual investors prefer short selling during the day and thus exert downward pressure during normal trading hours, or there is a lack of liquidity on nights and weekends, so investors can earn a premium for holding their shares during these hours.

Whatever the explanation, one thing is clear: all-day trading by Robinhood’s new class of retail investors wasn’t just profitable for the old investors.

The question is whether this trend will continue into 2021.

If you liked this post, don’t forget to subscribe Venture investor.

All posts are the opinion of the author. As such, it should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of the CFA Institute or the author’s employer.

Photo credit: © Getty Images / J2R

Professional learning for CFA Institute members

CFA Institute members are empowered to report self-earned and self-report Professional Learning (PL) credits, including content on Venture investor. Members can easily score credits using their online PL tracker.

Home Page




Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors