Is it more profitable to invest in the S&P 500 outside regular trading hours?

Question

Is https://www.nytimes.com/2018/02/02/your-money/stock-market-after-hours-trading.html correct? I don't think so because it doesn't consider dark pools?

Of note, each business day has only 6.5 trading hours. Adjusting for holidays, there are 253 trading days per year, so 1644 trading hours. There are 8760 total hours in a year, so trading hours is only 19% of total time. Thus, we'd expect 81% (100 - 19)% of the gains to happen outside trading hours anyway.

Answer 1

This "result" has been widely circulated. I have yet to see it well defined and properly tested and I'm not sure it makes sense to discuss it 'as is'.

1. What is the "S&P 500"? SPY? ES? Something else?
2. What are "regular trading hours"? Cash equity hours? Regular trading hours for ES are very different (CME link)
3. How are TC accounted for? TOB depth for ES is historically low and that is highly likely to be worse at the open
4. Are gaps properly accounted for? Possible there is drift in ES between 1615 and 1630 ET

Answer 2

I have SPY tick data starting with January 22, 2020, and only round lot trades (no odd lots).

For the period between 2020-01-22 and 2021-01-22, the intraday return was actually negative. I am surprised myself at such a large difference.

| total_return | overnight_return | intraday_return |
|-------------:|-----------------:|----------------:|
|     1.157266 |         1.221520 |        0.946561 |

SELECT EXP(SUM(LN(r_open_prev_open))) AS total_return,
    EXP(SUM(LN(r_open_prev_close))) AS overnight_return,
    EXP(SUM(LN(r_close_open))) AS intraday_return
FROM (
  SELECT symbol, datetime, open() AS open, close() AS close, 
  lag(open) AS prev_open, lag(close) AS prev_close, 
  open/prev_open AS r_open_prev_open, open/prev_close AS r_open_prev_close,
  close/open AS r_close_open
  FROM atsd_trade
    WHERE symbol = 'SPY' AND exchange = 'NYSE'
    AND datetime BETWEEN '2020-01-22' AND '2021-01-22'
    AND date_format(time, 'HH:mm') BETWEEN '09:30' AND '16:00'
  GROUP BY exchange, class, symbol, period(1 DAY)
    ORDER BY exchange, class, symbol, datetime    
)
WITH TIMEZONE = 'US/Eastern', WORKDAY_CALENDAR = 'nyse'

If aggregated by calendar month, the overnight returns look equally convincing.

| datetime | total_return | overnight_return | intraday_return |
|----------|-------------:|-----------------:|----------------:|
| 2020-02  |     0.882875 |         0.951986 |        0.957978 |
| 2020-03  |     0.907309 |         0.874644 |        1.004299 |
| 2020-04  |     1.114797 |         1.094290 |        1.029876 |
| 2020-05  |     1.032704 |         1.049549 |        0.998744 |
| 2020-06  |     1.012900 |         1.031547 |        0.983585 |
| 2020-07  |     1.056605 |         1.037498 |        1.018330 |
| 2020-08  |     1.084898 |         1.047615 |        1.023042 |
| 2020-09  |     0.959388 |         0.992556 |        0.962858 |
| 2020-10  |     0.968266 |         1.004340 |        0.972955 |
| 2020-11  |     1.115508 |         1.113467 |        0.995743 |
| 2020-12  |     1.024667 |         1.026078 |        1.005985 |
| 2021-01  |     1.010356 |         1.007456 |        0.982219 |