Some readers of this blog have noted that ideas such as SPY_at_noon or day_versus_night returns require the excessive effort of daily trading. For those readers and others this post offers an investment idea requiring far less effort. First I’ll show that day versus night returns are sensitive to VIX in the the US, in Europe and in China. These returns again require daily trading but I’ve included this high-maintenance strategy to complete the note in Post 26 and because it leads to a powerful low-maintenance strategy.
Buy Europe (VGK) and China (FXI) ETFs when VIX is high.
The first row of charts shows night minus day returns for all days and for low (0 to 14) VIX, second chart, medium(14 to 19) VIX and high(19 to 60) VIX. The first chart shows that nights are far more profitable than days in Europe and China. (But this effect doesn’t hold in the US.) The fourth chart in this row surprisingly shows that this overnight effect doesn’t hold when VIX is high. An academic mentioned that this overnight effect is know but not published because no-one can explain the phenomenon. Well it’s even more of a mystery why the phenomenon doesn’t hold at high VIX levels.
The second row of charts parallels the first row but shows daily returns. Chart 1 shows 10 years of returns for all days. For instance, 2018 was down year for the US but the loss and more has been recovered in 2019. The second, third and fourth charts show returns for low, medium and high VIX. The high VIX chart is the most interesting. In the world’s three largest economic centers stock returns have been positive when VIX is high for the last 10 years. To obtain positive returns in 30 out of 30 cases is an amazing statistic. Especially noteworthy is the strength of Europe and China returns over the US.
I can’t forget Richard Gere’s advice to Rene Zellwiger in the musical Chicago, “Keep repeating ‘We both reached for the gun’ because audiences only remember one thing.”
If you’re only going to remember one thing from this blog. Please remember:
Buy Europe and China ETFs when VIX is high