18. A Tale of Two Time Windows: Day vs Night Returns in US, Europe and China

I notified the New York Times author that his reported 24 year results were concentrated in the first 15 years while results during the last 9 years differed dramatically. Surprisingly, no response so I'm writing a letter to the editor.

This post repeats the analysis in post 17 with a focus on Europe and China. Results are constructed somewhat differently. It uses additive (more intuitive) rather than compound returns; It uses 9:45am prices (less noisy) rather than the 9:30am open. 

Between 1994 and 2008 SPY returned 101% during the day while dropping  -2% at night (These are additive not compound returns listed in the last post.) whereas between 2009 and 2018 it returned 68% during the day and 72% at night. So during the last 9 years, day returns equaled night returns. But what about Europe and China?

Both regions have liquid ETFs (FXI for China and EZU for Europe) which can approximate day and night returns.

Consider China which is open from 9pm to 4am. FXI's return from 4pm to 9:45am approximates this period with the proviso that China between 4am_ 945am and 4pm_9pm is unobservable. (OK, some of these periods could be measured by Asia/Europe ETFs or futures but these are illiquid.) China being closed 4am_ 9pm can be approximated by FXI  945am_4pm.

Similarly Europe open from 4am till 1130am can be approximated  by EZU from 4pm_1130am while Europe closed from 1130am-4am by  EZU from 1130am_4pm.

These approximations find China and Europe dropping while open and rising significantly while closed.

​	Market OPEN proxy FXI 4pm_945am ​EZU 4pm_1130am	Market CLOSED proxy ​FXI 945am_4pm ​EZU 1130am_4pm
China (9 years)	-24 %	126 %
Europe (9 years)	-40 %	130 %

These results suggest a robotic model such as buy FXI every day at 9:45am and sell at 4pm. This system overcomes transaction costs but faces the danger that the "rise overnight; drop during trading hours" phenomenon stops as it did for SPY in 2008.

Also, these results might partially explain my world GDP-weighted momentum system. If non-US markets rises are less frequent than drops, then when they do rise, the US market follows their lead.

I hear you saying: So if the 2008 day-night shift  happens for non-US markets there-by killing the buy_FXI_every day system won't it also kill buy-SPY-on selected-days. Possibly, but trading FXI every day returns about .02%/day after transaction cost with far more market exposure; Whereas selected trading returns .15%/day. This should provide more time to "see" the regime shift.

Also, buy_FXI_every-day certainly depends on China rising when its markets are closed. It's speculation that but-at-noon depends on this phenomenon so perhaps China could fall during closed periods and buy-at-noon would continue to work.

Any system, however, can (will) stop working but since Buy_SPY-at-noon has worked for 9 years why not follow it? Time will tell but for now all is well !
​