Nocturnal Trading

58 Pages Posted: 20 Mar 2025 Last revised: 24 Mar 2025

See all articles by Gregory W. Eaton

Gregory W. Eaton

University of Georgia

Andriy Shkilko

Wilfrid Laurier University - Finance

Ingrid M. Werner

The Ohio State University - Fisher College of Business

Date Written: March 16, 2025

Abstract

While several venues have offered trading prior to the U.S. equity market open and after the close for decades, only recently have alternative trading systems started offering trading between 8 p.m. in the evening and 4 a.m. the next day-nocturnal trading. This innovation enables U.S. retail investors to trade U.S. stocks and exchange traded products 24 hours, five days a week. Importantly, it also enables Asian investors to trade U.S. stocks during Asian business hours. We document the explosive growth of nocturnal trading in the last three years-a development that has recently motivated several additional venues to seek SEC approval to also offer nocturnal trading. We find that while effective spreads during the nocturnal hours are worse than during regular trading hours, realized spreads are about the same or better. We also find that significant price discovery takes place between 8 p.m. and 4 a.m., particularly for exchange-traded products. Finally, we rely on a quasi-natural experiment to study how nocturnal trading affects pre-open, regular, and after-hours trading.

Keywords: Nocturnal Trading, Dark Pools, Wholesalers, Execution Quality

JEL Classification: G20, G24, G28

Suggested Citation

Eaton, Gregory W. and Shkilko, Andriy and Werner, Ingrid M., Nocturnal Trading (March 16, 2025). Fisher College of Business Working Paper No. 2025-007, Available at SSRN: https://ssrn.com/abstract=5181159 or http://dx.doi.org/10.2139/ssrn.5181159

Gregory W. Eaton (Contact Author)

University of Georgia ( email )

Department of Finance
Athens, GA 30602-6254
United States

Andriy Shkilko

Wilfrid Laurier University - Finance ( email )

LH 4050
75 University Ave. W.
Waterloo, Ontario N2L3C5
Canada
548-889-4497 (Phone)

Ingrid M. Werner

The Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
346
Abstract Views
1,356
Rank
187,388
PlumX Metrics