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I have heard from several different sources, e.g. professors, books and traders, that daytraders and quants avoid holding positions overnight and during holidays and weekends. Instead, they sell their positions late in the day and buy it back in the morning. The reason is supposed to be that the trader wants to avoid the exposure to "bad news" during a time he can not act.

But if that is so, someone must be ready to buy those stocks to hold them over night. Who does that? And for what purpose? Are there banks that hold postitions overnight only, as a strategy?

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There are players in the market who do keep long term positions in stocks: - banks in their bank book - banks in their trading book - mutual funds - private persons on their accounts

I assume that everybody who is not specialized in day trading only usually holds stocks overnight because with every buy/sell the trader goes through one bid and one offer which can be costly.

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  • $\begingroup$ It is entirely possible that this is the case. If so, that implies that the lion part of the turnaround of stocks is made by long-term stock holders. Otherwise there would be large and predictable movements in prices at the end and beginning of each trading day. Is there data that supports that hypothesis? $\endgroup$
    – Student tea
    Jan 2, 2015 at 11:22
  • $\begingroup$ I don't know of such analyses. But there do exist periodical patterns I think. E.g. Willmot has a chart in one of his books where he plots that the average VIX change is much higher on a Monday then on every other weekday (maybe this depends on the period too). $\endgroup$
    – Richi W
    Jan 2, 2015 at 11:31
  • $\begingroup$ Additionally managers of mutual funds try to trade at times at which the NAV of their fund is calculated (can be during the day or in the end). Or they try to trade at the same time as the index that they are benchmarked to records the prices. $\endgroup$
    – Richi W
    Jan 2, 2015 at 11:32
  • $\begingroup$ Yes, there is higher volatility (as measured for example by VIX), but are the price changes predictable? Is the sign of the price change predictable? I think that is the crucial part. $\endgroup$
    – Student tea
    Jan 2, 2015 at 11:42
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You can decompose price/returns into an intraday and overnight effect and hold baskets that may be profitable (or expected) overnight.

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