Several research papers show that investor sentiment, also known as market sentiment, plays a part in market returns. Market sentiment refers to the general mood on the financial markets and investors’ overall tendency to trade. There are two types of mood on the market: bullish and bearish. Rising prices indicate bullish sentiment, while falling prices indicate bearish sentiment.
There are numerous ways to measure sentiment in the financial markets. Traditional sentiment indicators include the CBOE Volatility Index (VIX), High-Low Index or Bullish Percent Index (BPI). Another way to measure sentiment is by using various news sources, social media or other market sentiment indicators. This paper shows various ways to measure market sentiment and its influence on returns.
Additionally, traders have noticed that the US stocks have significantly higher return during the night sessioncompared to the daily session. Multiple academic studies have confirmed this suspicion and found that the US equity premium is mostly due to overnight returns. This paper looks at an overnight anomaly combined with three market sentiment indicators, including Brain Market sentiment indicator, VIX and the short-term trend in SPY ETF.

There are numerous possible reasons, which can explain an overnight anomaly.  Academic studies show that part of the reason for an overnight anomaly is the high opening prices derived from the accumulation of market orders from market participants, which subsequently decline in the first hour of trading. Some portion of positive overnight returns can be expected due to an illiquidity premium, but liquidity can explain only a small part of the night and day return difference.
Additionally, the explanation for market sentiment is pretty simple. When the sentiment is bullish the general mood on the market is good which means the investors tend to buy more, which makes the mood even better. On the other hand, when  the sentiment is bearish the general mood on the market is not so good which means the investors tend to buy less, which makes the mood even worse.