Bruce Knuteson writes:
Prompted by your blog post this morning, I attach a plot from Figure 3 of They Still Haven’t Told You showing overnight and intraday returns to AIG (with logarithmic vertical scale, updated with data through the end of October).
If you invested $1 in AIG at the start of 1990 and received only intraday returns (from market open to market close), you would be left with one-twentieth of a penny, suffering a cumulative return of -99.95%. If you received only overnight returns (from market close to the next day’s market open), you would have $1,017, achieving a cumulative return of roughly +101,600%.
You can easily reproduce this plot yourself. Data are publicly available from Yahoo Finance.
AIG is just one of many stocks with a suspiciously divergent time series of overnight and intraday returns.
If you have a compelling innocuous explanation for these strikingly suspicious overnight and intraday returns that I have not already addressed, I would of course be keen to hear it.
Alternatively, if you can think of a historical example of a strikingly suspicious return pattern in a financial market that turned out to clearly be fine, I would be keen to hear it.
If neither, perhaps you can bring these strikingly suspicious return patterns to the attention of your readers.
What continues to stun me is how something can be clear and unambiguous, and it still takes years or even decades to resolve.
The linked article is fun to read, but I absolutely have no idea about this, so just sharing with you. Make of it what you will. You can also read this news article from 2018 by Matt Levine which briefly discusses Knuteson’s idea.
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