Are Extended Hours Prices Predictive of Subsequent Stock Returns?

38 Pages Posted: 15 Jul 2016 Last revised: 1 Dec 2016

See all articles by Shai Levi

Shai Levi

Tel Aviv University

Joshua Livnat

New York University; Prudential Financial - Quantitative Management Associates

Li Zhang

Rutgers, The State University of New Jersey - Accounting

Xiao-Jun Zhang

University of California, Berkeley - Accounting Group; China Academy of Financial Research (CAFR)

Date Written: November 29, 2016

Abstract

Trading outside the main session occurs between 4:00PM-8:00PM and 4:00AM-9:30AM and is typically dominated by institutional investors, as retail investors are discouraged to trade in the extended trading hours. This study examines whether trading in the extended hours is predictive of future returns. It shows that on regular trading days, extended hours returns are negatively associated with returns in the Main trading session (9:30AM-4:00PM), consistent with extended hours trading that is induced by liquidity needs rather than information. In contrast, when significant new information is released during the extended hours sessions such as earnings, analyst recommendation changes, and SEC filings, the extended hours returns are positively and significantly associated with the following Main session returns, and even with long-term drift returns. The evidence is consistent with an under-reaction to information on news days, and suggests that the return reaction during extended trading hours can help predict the return drift after news events.

Keywords: Extended hours trading, earnings announcements, stock recommendation changes, SEC filings, under-reaction

JEL Classification: G02, G14, M41

Suggested Citation

Levi, Shai and Livnat, Joshua and Zhang, Li and Zhang, Xiao-Jun, Are Extended Hours Prices Predictive of Subsequent Stock Returns? (November 29, 2016). Available at SSRN: https://ssrn.com/abstract=2809950 or http://dx.doi.org/10.2139/ssrn.2809950

Shai Levi

Tel Aviv University ( email )

Tel Aviv, 69978
Israel

Joshua Livnat

New York University ( email )

44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
United States
212-998-0022 (Phone)
212-995-4004 (Fax)

Prudential Financial - Quantitative Management Associates ( email )

2 Gateway Center
6th Fl.
Newark, NJ 07102
United States

Li Zhang (Contact Author)

Rutgers, The State University of New Jersey - Accounting ( email )

1 Washington Park, Room 996
Newark, NJ 07102
United States

Xiao-Jun Zhang

University of California, Berkeley - Accounting Group ( email )

545 Student Services Building
SPC 1900
Berkeley, CA 94720
United States
(510) 642-4789 (Phone)
(510) 642-4700 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Register to save articles to
your library

Register

Paper statistics

Downloads
638
Abstract Views
2,212
rank
40,120
PlumX Metrics