This Market Anomaly Pays While You Sleep (The Fed Proved It)

Overview

The presenter describes the overnight return anomaly: in the cited Nasdaq data covering roughly 11 years, about 70% of returns occurred outside regular US trading hours. A buy-and-hold position reportedly gained about $441,000, compared with $133,000 from being long only during regular hours. The implied overnight portion was about $312,000.

These are results presented in the video; the subtitles do not specify the contract size or starting capital.

Proposed explanations

The video attributes the pattern to several possible mechanisms:

• Overnight risk premium: Investors may require compensation for holding risk while markets are closed.
• News and liquidity: Overnight news can move prices in thinner markets, potentially causing an initial overreaction that reverses when liquidity returns.
• Market-maker inventory: The presenter says the strongest supporting evidence points to dealers accumulating unwanted inventory during the US session—especially on down days—and unwinding it as European liquidity arrives.

The presenter cites a 2008 study on trading- versus non-trading-hour returns and a 2020 Federal Reserve Bank of New York paper, “Nighttime Drift.” The anomaly is described as appearing across indices and individual stocks, in the US and internationally. The video also notes a possible reversal during the first hour after the US open, but does not develop it into a tested strategy.

Strategies and Reported Backtests

All results below are presented by the video as including commissions and slippage.

Overnight-range breakout

Define a range after the cash-market close, go long if price breaks above it, place a stop at the range low, use a 1:1 target, and close around 3:00 a.m. Central Time.

• 521 trades since 2021
• 53% winners
• 1.27 profit factor
• About $57,000 profit using one contract

Fixed-time overnight long

Go long at 5:00 p.m. Central Time and exit at 3:00 a.m. Central Time every night.

• 1,424 trades
• $141,000 net profit

The presenter cautions that results were concentrated in 2024–2026. The period from 2021 to 2023 was nearly flat, with roughly $7,000 in profit across those first three years.

Red-day-filtered overnight long

Use the same entry and exit times, but trade only when the prior regular session was down. The video describes this as a decline from 9:00 a.m. to 4:00 p.m. Eastern Time.

• 628 trades
• $137,000 net profit
• 1.39 profit factor
• 58% winners
• $218 average profit per contract

The presenter says the filter cut more than half the trades while retaining over 90% of the prior version’s net profit. Average profit per trade roughly doubled from less than $100.

Annual figures given are 2021: +23%, 2022: +10%, 2023: +11%, and 2024: +3%. The presenter also claims six positive years, but the subtitles do not provide figures for all six.

Key Cautions

• The results are backtests, not a guarantee of future performance. A simpler version showed substantial concentration in a later market regime.
• The red-day filter may miss many trades during a low-volatility rising market. The trade-off is fewer upside nights in exchange for focusing on nights following down sessions.
• The video describes the timing and mechanics, but the subtitles do not provide enough detail to independently verify the backtests.
• No explicit “not financial advice” disclaimer appears in the subtitles.

Assets, Instruments, and Sources

• Asset/instrument: Nasdaq market/index and a Nasdaq trading contract; no ticker symbol is explicitly spoken in the subtitles.
• Research cited: A 2008 study on returns during trading versus non-trading hours and the Federal Reserve Bank of New York’s 2020 paper, “Nighttime Drift.”
• Presenter: Mati, identified in the channel context as Matteo Conti.