Millions of retail investors have opened brokerage accounts over the past 12 months, and for a lot of, daytime trading has been a method to pass the time, entertain themselves, and make some money.
Did all this trading activity actually help the typical retail investor’s portfolio in the course of the COVID-19 dominated months of 2020?
The right time is at night.
To discover, we checked out Robinhood’s list of 100 hottest stocks traded by retail investors over the past 12 months.
We checked out how an investor would do in the event that they bought each stock day by day on the open and sold it hours later on the close. We called this the every day return. Then we compared this to the overnight return, which is what an investor would get in the event that they bought the stock on the close, held it overnight, after which sold it on the open.
As it seems, investors who traded these 100 stocks in the course of the day actually lost average return of 0.183% per day. If we assume 21 trading days in a month, this equates to losses of three.84% monthly in every day returns.
However, when investors took the chance of holding the identical stocks overnight, they earned a mean return of 0.195% per night, or 4.10% monthly. And when investors held the stocks over the weekend, they earned a mean return of 0.271% per weekend, or 1.08% monthly, assuming 4 weekends monthly.
Average returns: 100 most traded stocks
| Return in the course of the day | Night return | Return trip on the weekend | |
| 2010–2019 | 0.004% | 0.042% | 0.05% |
| 14th of February- 31 December 2020 |
-0.183% | 0.195% | 0.271% |
What is instantly noticeable after we compare the present COVID-19 era with the ten years before it’s that every day returns were much lower in the course of the pandemic. From 2010 to 2019, the typical every day return of the 100 hottest stocks was 0.004% per day, in comparison with -0.183% in the course of the COVID-19 period.
There was also a transparent trend in nightly returns. From 2010 to 2019, they averaged 0.042% per night. During the pandemic, they jumped to 0.195% per night between February 14 and December 31, 2020.
In fact, since February, when so many latest investors entered day trading, 95 percent of those most traded stocks have produced higher returns at night than in the course of the day.
The day-night-weekend performance of Tesla shares illustrates these larger patterns. Investors who bought Tesla on the open of every trading day after which sold on the close achieved, on average, Loss of 0.12% per day. However, in the event that they held the stock overnight, they gained a mean of 0.83% per night. And in the event that they held it over the weekend, they earned a mean of 1.49% return per weekend!
There are two possible explanations for these results: either retail investors prefer to short sell in the course of the day, thereby exerting downward pressure during regular trading hours, or there’s an absence of liquidity at night and on weekends, allowing investors to earn a premium for holding their shares during these times.
Whatever the reason, one thing is obvious: day trading by Robinhood’s latest class of retail investors was not profitable for long-only investors.
The query is whether or not this trend will proceed until 2021.
If you liked this post, don’t forget to subscribe.
Photo credit: ©Getty Images / J2R
