The “witching hour” was long said to be the time of night where demons, ghosts, ghouls and witches were at their most powerful. It turns out that it is also when the US stock market is at its mightiest.
American bourses officially open between 9.30am and 4pm in New York, yet weirdly most of the gains actually accrue in the sparser, more informal after-market trading that happens on various electronic exchanges, according to a study by the New York Federal Reserve. Early morning returns, on the other hand, tend to be negative. The phenomenon has long puzzled many analysts.
It gets weirder. Research by Bruce Knuteson, a former quantitative analyst at the hedge fund DE Shaw, indicates that “overnight drift” and “intraday reversal” also happens in international markets, from Japan to Norway. Knuteson also has a far more controversial, conspiratorial interpretation of the pattern than other researchers who have probed it over the years. He reckons that it is caused by systematic market manipulation on a Herculean scale by some quantitative hedge funds.