New research out of UC Berkeley indicates that overnight market activity may be a good indicator for market trends. This research could add another level to market analysis.
With all the tech-talk around here, it’s refreshing to see some news in the world of marketing. The latest news covers trends in overnight trading, and what they can mean for any product or market that you want to keep an eye on.
According to a new study coming out of UC Berkeley’s Haas School of Business, overnight market activity isn’t just prevalent in today’s markets–it’s a possible window into the mind of the private investor.UC Berkeley shined a light on overnight trading.Click To Tweet
Before we dig too deeply into what that means, let’s outline exactly what we mean by overnight trading or overnight returns as the accounting wizards call it.
What is ‘Overnight Market Activity?’
Personally, I have a mental image of 1980s stock trading that entails a veritable mob of people crawling over each other at the exchange. Yet, in reality, returns can happen at nighttime just as well as during the day. It does happen to be a different crowd that does it, however.
The stock market buzzes during the day, for sure, but this is when you see a majority of investment firms and companies devoted to the singular purpose of turning a profit from the stock market. After hours, however, trades are done mainly by private investors, who no doubt also want to turn a profit, but seem less likely to concern themselves with the market at large.
These investors are more apt to rely on their faith in a product or service and may have an entirely different set of information than the investment firms do. What’s more is that they may be right when their money is concerned.
This is where the new study comes in. Omri Even Tov is an assistant professor of accounting at Berkeley, and he found that prices and returns trended in the same direction during a period of up to 12 weeks. This information may shed some light on how sentiment factors into the thoughts of individual investors. According to Even Tov, overnight returns can indicate that sentiment, and he and his research team studied 21 years of overnight returns to come to that conclusion.
When you are talking about business, results matter. Using the information gained from the study, the researchers were able to get a 7.4 percentage point premium from a strategy of buying and selling stocks based on overnight returns.
So overnight trading can be a good indicator of what individual investors think. How will that affect the future?
Overnight Trading and Industry 4.0
The technological revolution that is Industry 4.0 thrives off of the free market.
Someone gets a good idea, they design it, they make a startup, then someone else invests in the idea, and hopefully this new idea becomes marketable. After that, the startup is either sold off or becomes a more complex and stable company in its own right.
If you know what private investors know, or you at least have an indication of what they may know, then you may be able to track the rise of various technologies or products. As an entrepreneur, overnight trading should be on your list of things to consider.
If you want to know where the personal computer market is going, consider looking at big producers like HP. Want to know if the renewable energy market is going to stay healthy? Again, look at the overnight purchases.
Want to know if the renewable energy market is going to stay healthy? Again, look at the overnight purchases.
Here’s another thought: If you see a lot of overnight trading going on in industries that are complementary to immigration and corrections, they might be getting tapped by the Trump Administration. To that end, I think we could safely predict a demand in biometric tech (iris scans, fingerprint readers/live scans, etc.), especially for mobile units.
We could speculate all day long on how private investors can give us such a good indication of market trends. Nevertheless, the research team added another dimension to market analysis. We can’t wait to see how the business nerds go nuts over this one.