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Rev Fin 2003; 16:1041-1073
© 2003 the Society for Financial Studies

Price Discovery and Trading After Hours

Michael J. Barclay
University of Rochester

Terrence Hendershott
University of California, Berkeley

Address correspondence to Terrence Hendershott, Haas School of Business, UC Berkeley, 596 Faculty Bldg. #1900, Berkeley, CA 94720, or e-mail: hender{at}haas.berkeley.edu.

Abstract

We examine the effects of trading after hours on the amount and timing of price discovery over the 24-hour day. A high volume of liquidity trade facilitates price discovery. Thus prices are more efficient and more information is revealed per hour during the trading day than after hours. However, the low trading volume after hours generates significant, albeit inefficient, price discovery. Individual trades contain more information after hours than during the day. Because information asymmetry declines over the day, price changes are larger, reflect more private information, and are less noisy before the open than after the close.


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