Price Discovery and Trading Costs after Hours

35 Pages Posted: 2 Mar 2000

See all articles by Michael J. Barclay

Michael J. Barclay

University of Rochester - Simon School (Deceased)

Terrence Hendershott

University of California, Berkeley - Haas School of Business

Date Written: January 24, 2000

Abstract

This paper examines the trading process outside of normal trading hours. Although after-hours trading volume is small, after-hours trades are more informative than trades during the day, and are associated with significant price discovery. Spread-related trading costs are also more than twice as large after hours than during the trading day. For Nasdaq-listed stocks, we observe two separate trading processes in the after-hours market: larger less-informative trades are negotiated directly with market markers and smaller more-informative trades are executed anonymously on electronic communications networks. Although both trading processes are active after the close and before the open, the non-anonymous liquidity-motivated trades are more prevalent after the close and the anonymous information-motivated trades are more prevalent before the open.

JEL Classification: G12, G14

Suggested Citation

Barclay, Michael J. and Hendershott, Terrence J., Price Discovery and Trading Costs after Hours (January 24, 2000). AFA 2001 New Orleans; Simon School of Business Working Paper No. FR 00-03. Available at SSRN: https://ssrn.com/abstract=207914 or http://dx.doi.org/10.2139/ssrn.207914

Michael J. Barclay (Contact Author)

University of Rochester - Simon School (Deceased)

N/A

Terrence J. Hendershott

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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