Professional Documents
Culture Documents
Brian Walkup
University of Florida
September 9, 2009
Abstract
I use after-hours trading (post-close and pre-open) to examine the cost of finding liquidity in an
illiquid market. Using a large sample of after-hours trades from the three major U.S. stock
exchanges I determine the amount of price reversal that occurs when liquidity returns at the open
of normal trading hours. The size of the reversal is statistically and economically significant
with approximately 40%-65% of the after-hours price change reversing at the time of the
opening trade for the next trading day. However, during after-hours sessions with significantly
increased trading this reversal shrinks considerably, even becoming a momentum effect in
certain conditions. These days of heavy trading likely represent days in which an information
event has occurred outside of regular trading hours and therefore a price reversal would not be
expected as the price is reacting to the new information. This study suggests that those looking
for a large amount of liquidity in an illiquid market (such as the after-hours market) are forced to
pay a large premium for the liquidity.
Introduction
The three major U.S. stock markets (New York Stock Exchange, Nasdaq, and American
Stock Exchange) all operate from 9:30am to 4:00pm on trading days. Outside of these normal
hours of operations information is still revealed and trades can still occur. However, the after-
hours market doesn’t come close to matching the liquidity available while the major exchanges
are open. Due to the lack of liquidity, those making trades during the after-hours sessions pay a
This paper looks at the size of the price reversal/momentum when the market opens for
trading after there has been a price movement during the after-hours session. Due to the lack of
liquidity available after-hours, when liquidity is needed in one direction trades will have to be
executed at prices further and further away from the closing price of the prior day in order to be
able to find the liquidity to fulfill the orders. If the change in the price over the after-hours
session is mostly the result of a significantly larger liquidity premium outside of regular trading
hours, then we should expect to see a reversion back towards the original closing price from the
previous trading day when the market opens at 9:30am. However, if the change in price is the
result of new information (whether public or short-lived private information) being priced, then
I look at a large sample of stocks from all three U.S. exchanges and use trade-by-trade data
from the Trade and Quote database (TAQ). After-hours returns are calculated as well as the
stock’s price change from the last after-hours trade to the open price once the market opens for
trading. Multiple regressions are used to look at the impact of after-hours returns on the opening
price at the beginning of the next trading day as well as the price movement during the first hour
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of the trading day. Control variables include firm size, sign of the after-hours return, whether or
not there was a significant increase in after-hours trading during that session, whether or not
there was a single large trade that dominated the after-hours trading, and whether or not the after-
There are multiple hypothesis that can be formed regarding how the after-hours price change
of a stock could impact the opening price for the next trading day. Many of the trades made
outside of regular trading hours are likely to be liquidity based such as funds re-balancing. They
also could be based on new information being revealed publicly while the markets are closed,
such as an after-hours earnings announcement. It is also likely that many of the trades executed
after-hours are based on short-lived private information. If the prices are being shifted due to
liquidity demands, we should see a reversal due to the increased cost of finding liquidity after-
hours. However, if the trades are information based it is not likely that we will see this reversal
The results of this paper support the hypothesis that there is a significant increase in the cost
of trading associated with the illiquidity of the after-hours market. I show that returns that occur
outside of trading hours tend to reverse themselves at the open of trading the next trading day.
This is likely the effect of a high cost of demanding liquidity in the after-hours market.
However, if there is a high probability that new information was revealed (proxied by an increase
in after-hours trading of more than two standard deviations) then the reversal essentially
disappears.
The magnitude of the reversal is quite significant. If after-hours trading volume for a stock
during an after-hours session falls within the normal range (not more than a two standard
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
deviation increase in trading volume) then approximately 40-65% of the after-hours price change
is reversed immediately upon the opening of regular trading hours. The reversal is statistically
stronger for small market capitalization stocks (approximately 7.7% larger reversal than large
market capitalization stocks), during after-hour sessions that occur over weekends
(approximately 6.6% larger reversal than non-weekend after-hours sessions), and during after-
hours session with negative after-hours returns (approximately 12.4% larger reversal than during
The rest of the paper is organized as follows: In Section II I give an overview of the existing
literature on the microstructure of the after-hours market. Section III gives the details of the data
selection. Section IV discusses the findings of the paper. Finally, Section V concludes the paper
Much of the early literature regarding after-hours trading dealt with stocks that were listed on
at least one stock market outside of the U.S. as well as being listed on one of the major U.S.
exchanges. For example, Neumark, Tinsley, and Tosini (1991) found that price changes on the
U.S. exchanges were adequately incorporated the next day in the international markets, but the
opposite wasn’t always the case. However, after-hours trading has come a long way since these
early articles and trading jointly listed stocks on an alternative exchange is no longer the only
manner of trading a stock after-hours. After-hours trading began in 1975 but was limited to only
institutional investors and large block trades. It wasn’t until 1999 that regular investors were
allowed to trade outside of the normal 9:30am – 4pm trading day. Due to this fundamental
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
change, I will focus on the more modern strand of the literature which looks at the after-hours
One of the most important papers in the current after-hours literature is Barclay and
Hendershott (2003). This paper is not only important because of its overall findings, but also
because it has the most comprehensive summary statistics concerning after-hours trading. They
show a clear picture of after-hours trading relative to regular trading hours. The data used by
Barclay and Hendershott contains all after-hours trades and quotes for Nasdaq-listed stocks for
212 trading days during 2000. They show that these stocks average around 25,000 after-hours
trades per day. This represents almost 4% of the daily total trading volume on average.
Throughout their study they focus on the 250 highest-volume stocks from their sample, which
they show represents about 75% of all after-hours trading. Barclay and Hendershott show in
Figure 1 of their paper that after-hours trading is strongest directly before the open and after the
close of regular trading hours. It also shows that volatility follows the same pattern, but with a
much less severe drop-off during after-hours trading. The main finding of Barclay and
Hendershott (2003) is that the amount of information on a per-trade basis during after-hours
trading is significantly higher than during regular trading hours. Therefore, even though the
volume of trading is significantly lower, there is still strong price discovery outside of regular
trading hours.
Barclay and Hendershott also make some other interesting observations about after-hours
trading. First, they argue that the lack of popularity of after-hours trading likely stems from their
finding that there is a higher probability of information-based trades on a per-trade basis outside
of regular hours. Smaller liquidity traders prefer to try and trade together to minimize the
likelihood of trading against informed traders and are therefore better off pooling together during
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
regular trading hours when the per trade likelihood of informed trading is lower and trading costs
are smaller. They also touch on how the different characteristics of after-hours trading could
affect whether or not a firm releases earnings announcement during regular trading hours or
after-hours. In their paper they claim, “The noisier stock prices and less efficient price discovery
after hours could affect firms’ decisions about the timing of their public announcements, such as
earning announcements. Announcements made after hours are likely to generate greater
volatility and larger price reversals than are announcements made during the trading day.”
(Barclay and Hendershott, 2003, p. 1070) The idea of after-hours trading affecting firms’
decisions on public announcements has generated some interest in recent years including Greene
In Barclay and Hendershott (2004) the authors look at after-hours trading and its effect on
market microstructure characteristics. They look specifically at how the lack of trading outside
of normal trading hours affects trading costs through bid-ask spreads. Their results are
consistent with what should be expected. The lack of liquidity in the after-hours market results
in higher trading costs. Both quoted and effective spreads increase significantly outside of
normal trading hours. The percentage effective half spread moves from an average of
approximately 0.17% during the trading day to approximately 0.6% after-hours. They also find
that spreads become significantly larger for stocks with lower trading volume. Barclay and
Hendershott then break the bid-ask spread down into its three fundamental components:
inventory holding costs, order processing costs, and adverse selection costs (as found in Stoll,
1989). They find that the adverse selection component of the spread is 15 times larger during the
pre-open than during normal trading hours and 7 times larger during the post-close than during
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
normal trading hours. They sum up why they feel after-hours trading will never grow much
beyond its current low level of trading with the following thoughts:
“The magnitude of the liquidity externalities suggest that exchanges have little
incentive to expand their trading hours due to competitive pressure. Despite the
wide spreads, profit opportunities for dealers to provide liquidity appear limited
and the high adverse selection and low trading activity make monitoring the
market costly. The wide spreads should discourage investors from trading after
hours unless they have very high liquidity demands or short-lived private
trading costs and volatility, currently employed by brokers and regulators should
There are relatively few other papers that look at the current after-hours trading market. One
such paper that does is Zdorovtsov (2003). Zdorovtsov looks mostly at the volatility over the
after-hours period and considers the private information hypothesis and the public information
hypothesis. One of the main findings of the paper is that a large amount of trading volume in the
pre-open period coincides with more volatility in overnight returns and less volatility during
regular trading hours. According to the author this represents a shift in the price discovery
toward the pre-open hours. Another important finding of the paper is that the greater the flow of
public information after hours the greater the after-hours volatility (and the same is true for
during normal trading hours). Finally, Zdorovstov finds evidence (as in prior studies) that
information releases outside of trading hours are of greater economic significance than
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
I use transaction level TAQ data for all three U.S. exchanges from January 1, 2006 to
December 31, 2006. All of the stocks traded on all three exchanges are sorted by exchange and
then placed into deciles based on annual trading volume. Standard screens are used to eliminate
REITs, trusts and holding groups. A random sample of 50 stocks is selected from deciles four
through ten for each exchange, leaving a sample of just over 1,000 firms. Deciles one through
three are eliminated due to their very low frequency of after-hours trades (similar to Barclay and
Hendershot, 2003). All penny stocks (stocks traded at any point during the year for less than $5)
are eliminated from the sample. This step is taken to ensure that the after-hour returns are not
being caused in large part by the bid-ask bounce and the fact that there is almost no liquidity for
these stocks in the after-hours market. This is more likely to be the case for stocks with low
prices. The remaining sample consists of 617 firms. Prior to calculating after-hours returns all
price of the last after-hours trade prior to the market opening for firm i on day t, and is
the closing price for firm i on day t-1. Out of a potential 155,484 after-hours returns (617 firms *
252 trading days) there are 140,997 days that I am able to calculate an after-hours return (not all
firms have non-zero after-hours trading every-day and one day per firm is lost in order to be able
to calculate an overnight return). Summary statistics for the complete sample of after-hours
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
The dependent variable in my regressions represents the change in price from the last
after-hours return to the opening price when regular trading resumes at 9:30am the next trading
Where is the dependent variable representing the change in price for firm i on
day t from the last after-hours trade executed to the opening price at 9:30am when the exchange
opens for trading. represents the price of the stock for firm i when the market opens for
trading on day t and is the price of the last after-hours trade for firm i on day t.
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
One distinct way I look at the data for a robustness check is by eliminating trades with
after-hours price movement close to 0%. It is likely that in many of these cases there is very
little need for liquidity after-hours. There may be only a few trades executed while the
exchanges are closed and therefore the price remains relatively close to the closing price from
the prior day. In these cases a price reversal wouldn’t necessarily be expected. This could affect
the model. Therefore I remove these observations from the sample to see if the results of the
Another robustness check that I utilize is to re-run the regressions looking at longer
period returns. The dependant variable is changed from the very short time interval of
ReturnOpen to time intervals of 5 minutes, 15 minutes, 30 minutes, and 1 hour from the opening
of trade. This allows me to see whether or not the reversal is maintained as regular trading
continues through the early morning trading. These returns are calculated as follows:
Return5Min = /
Return15Min = /
Return30Min = /
Return1Hour = /
I start by eliminating any days in which the after-hours return is less than . The
remaining dataset consists of 54,445 days with after-hours returns greater than 0.25% or less than
-0.25%. I do the same procedure again cutting the dataset into after-hours returns greater than
0.5% or less than -0.5% which consists of 33,666 observations. This is once again done using
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
1% as the cutoff (16,015 observations) and 2% as the cutoff (5,678 observations). Summary
III. Results
For the initial set of results I utilized my entire sample of 142,371 after-hours sessions from
617 firms. OLS regressions are run with ReturnOpen as the dependent variable. First I use only
AHreturn as the explanatory variable. From there other explanatory variables are added. The
initial assumptions on signs would be as follows (No prediction will be made on dummy
variables since the effect is likely to be opposite on positive AHreturns and negative AHreturns.
AHreturn : Negative
prices for the open of trading. Since a reversal is expected the sign should be
negative.
SmallMarketCapInteraction: Negative
o If the company associated with the stock has a small market cap then it is
likely that the after-hours market for the shares of the company’s stock would
expected to be negative.
AHnegativeDumInteraction : No prediction
AHreturn. This simply allows the slope of the reversal relative to the after-
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
hours return to be different for negative after-hours returns than positive after-
difference in slope.
LargeNumberOfTradesInteraction : Positive
the after-hours trading session then it is more likely that an information event
hours, then the price is being adjusted for the new information and we
therefore should not expect as large of a reversal (and possibly even some
momentum rather than reversal). Any reversal that would normally be found
(which would have a negative sign) would need to be offset, therefore making
variable.
OneLargeTradeInteraction : No prediction
o In the case that there is a single large trade during an after-hours session the
prediction could go either way. A claim could be made that there is a high
inside information based. In this case the prediction would depend on how
becomes public by the opening of trading then we should see no reversal and
revealed until after the opening than it can be treated as a liquidity trade and
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
argument could also be made that if there is only one single large trade then it
is likely liquidity based. The argument could be that if it was based on public
information there would likely be other large trades, while if it was inside
single large trade would be liquidity based and result in increased reversal
WeekendInteraction : No prediction
of regular trading).
The results for the regressions on the full sample are shown in Table 3. All of the
independent variables theoretically signed have the predicted signs and are statistically
significant at the 99% significance level. Figure 1 shows the expected amount of reversal given
differing after-hour returns. It is quite evident from Figure 1, as well as from Table 3, that the
most important determinant in deciding if a large reversal will take place is whether or not there
is large number of trades (greater than 2 standard deviation increase from the mean number of
trades). Given that the variable representing a large number of trades should be a good signal of
some form of public information event these results are quite consistent with the lack of liquidity
and high cost of finding liquidity during after-hours trading story. If the trading levels are
normal, a very significant portion of the price change during the after-hours session is
immediately reversed upon the opening of regular trading hours at 9:30am the next morning.
Approximately 40-65% (depending upon factors such as whether or not the firm is a small
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
market cap firm, whether or not the after-hours return was negative, etc) of the after-hours price
movement can be explained as simply an additional cost of liquidity during an illiquid market
given that it is immediately reversed once normal liquidity resumes. If there is an information
event then liquidity becomes less of an issue and the reversal effect becomes much less
significant as the price is being moved closer to the true value given the new information.
The after-hours return variable alone is extremely statistically significant and shows that
movement with approximately an additional 12% reversal if the after-hours return is negative
(giving a reversal of 56%). A potential explanation for negative after-hours returns experiencing
a larger reversal is that those being forced to sell for liquidity during the after-hours sessions are
likely in more of a “must-sell” mode than those buying are in a “must-buy” mode and therefore
are willing to pay higher premiums to find the liquidity. The other key variables (the interaction
terms) also come through as statistically significant. As predicted, small market capitalization
firms tend to experience larger reversals as liquidity is harder to find. The coefficient on the
SmallMarketCapInteraction shows an expected 7.7% larger reversal for small market cap firms.
A stock having a single large trade during the after-hours session results in approximately a 9.5%
smaller reversal. The reversal effect is approximately 6.6% stronger following a weekend.
A large portion of the observations have very little after-hours price movement. In fact, over
60% of the observations have price changes of less than 0.25% during the after-hours session. In
these cases it is likely that there wasn’t much need for liquidity outside of the regular trading
hours. If there are only a few trades made and the price has very little movement, it becomes
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
less likely that we will see a significant reversal when the market opens at 9:30am and regular
liquidity resumes. These observations could affect the model. Therefore, I rerun the regressions
after making restrictions on the size of the after-hours price movement to determine if the results
The first step taken is to eliminate all observations during which the after-hours return is less
than the absolute value of 0.25%. The results of these regressions can be found in the first
column of Table 4 (also shown in Figure 2). After removing approximately 60% of the
observations which were clustered around an after-hours price change of 0% the results of the
regressions have not changed much. The magnitude of the price reversal is still around 40%-
65% of the after-hours price change. The explanatory variables all remain of the same sign and
nearly the same magnitude. The t-statistics fall due to the significantly decreased number of
observations. However, the explanatory variables all remain extremely significant statistically.
The adjusted R2 of the model increases as it is now able to explain a larger amount of the
I then continue to reduce the observations clustered near an after-hours price movement of
0% from the model by eliminating all observations for which the after-hours return is less than
the absolute value of 0.5%. The results for these regressions are shown in the second column of
Table 4 and can be seen in Figure 3. Once again the magnitude of the results is relatively
unchanged while the statistical significance of the model and the independent variables stay very
high. This same procedure is repeated again using the absolute value of 1% as the cutoff for
AHreturn (results in the third column of Table 4 and shown in Figure 4) and once more for 2%
as the cutoff for AHreturn (results in the fourth column of Table 4 and shown in Figure 5). The
magnitude continues to be relatively unchanged as the sample size is reduced and the clustered
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
observations with very little movement are peeled away. Despite the shrinking sample size the
statistical and economic significance remain large. From comparing all of the models utilizing
different cutoffs, it appears that the clustering around an after-hours price change of 0% does not
significantly affect the results of running the regression on the whole sample. Regardless of
whether the regression is run on the full sample or a restricted sample, it still remains evident that
there is a large price reversal of around 40-65% conditional on there not being abnormally high
trading.
As another robustness check, the time-length of the return is expanded from simply the
change between the last after-hours trade and the opening trade of the next trading day. I look at
5-minute returns and 1-hour returns (15 and 30 minute returns also used with similar results but
excluded from the paper to avoid overkill). The 5-minute return regression results are available
in Table 5 and the 1-hour returns regression results are available in Table 6. The expected
amount of reversal given differing after-hours returns are available in Figures 6 and 7 for the 5-
minute returns and 1-hour returns, respectively. The results from these regressions show that the
magnitude of the reversal remains relatively unchanged as the regular trading hours take place
the morning after the after-hours price change. As was the case with the earlier regressions, even
after 5 minutes or 1 hour the magnitude of reversal is still approximately unchanged with
approximately 40-60% of the after-hours price change being reversed if there is not a large
amount of trading. It is also still the case that a significant increase in the amount of trading
results in this reversal decreasing significantly, and even becoming a slight momentum effect
depending on other factors. These results show that is not simply the opening trade that
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
experiences this reversal. Instead, the reversal is more permanent and continues as trading picks
IV. Conclusion
This paper demonstrates the importance and magnitude of the costs associated with trading in
an illiquid market. When traders are forced to find liquidity when there isn’t much available,
they can tend to have a strong impact on the price until the liquidity returns to normal levels.
The after-hours market is a perfect testing ground for this impact. The liquidity found in the
after-hours market is substantially less than the liquidity found during regular trading hours.
Over a short period of time the liquidity is restored (at 9:30am when the markets open) and we
would expect to see a reversal of the price changes that occurred after-hours if the prices were
being mostly driven by liquidity demands. However, in the cases where the price is being moved
by information rather than liquidity demands, we would expect this reversal to become much less
significant and potentially go all the way to zero or become a momentum effect.
I look at a large sample of after-hours trading and calculate the return from the close of
trading the previous trading day until the last after-hours trade. I then calculate the change in
price from the last after-hours trade to the opening price when trading resumes the next trading
day. Using this data, as well as other explanatory variables, I find that there is a significant
reversal of the magnitude of 40%-65% when the regular trading hours begin and high liquidity
returns. This reversal becomes much smaller and, depending on other variables, can even
become a slight momentum effect when there is a significant increase in the amount of after-
hours trading. This increase in trading has a high probability of signaling an information event.
Therefore the significant lessening of the reversal effect, and even potential momentum effect, is
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
expected given that the price is moving during the after-hours session in response to the new
information. The price is becoming more efficient and a reversal would not be needed when
My results would tend to imply that there are abnormal potential profits to be made by being
one of the traders providing liquidity during the after-hours sessions. This is in contrast to the
results of Barclay and Hendershott (2004) where they claim that the dollar profit per share is the
same after-hours as it is during the day. They look at the bid/ask spread and break it down into
its fundamental components and find that the profit from the spread is approximately the same
after-hours as it is during the trading day. I believe that it would be worthwhile to look into this
further with my results to identify whether there are excess profits to be made by providing
Another possible extension to my paper would be to identify which observations are linked to
the release of new information being revealed outside of regular trading hours. By identifying
instances linked to information events, such as quarterly earnings announcements, being made
outside of regular trading hours, I could more efficiently test the exact reversal for non-
information event after-hours sessions verse information event after-hours sessions. However,
given that it is impossible to precisely identify private information events, I would not be able to
determine the impact that private information events have on the reversal/momentum of after-
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
References
Bagnoli, Mark, Michael Clement, and Susan Watts. May 2006 version. McCombs Research
Paper Series. “Around-the-Clock Media Coverage and the Timing of Earnings
Announcements.”
Barclay, Michael and Terrence Hendershott. 2003. “Price Discovery and Trading After Hours.”
The Review of Financial Studies. Vol 16 No 4. pp 1041-1073.
Barclay, Michael and Terrence Hendershott. 2004. “Liquidity Externalities and Adverse
Selection: Evidence from Trading After Hours.” The Journal of Finance. Vol 59 No 2.
pp 681-709.
Damodaran, Aswath. 1989. “The Weekend Effect in Information Releases: A Study of Earnings
and Dividend Announcements.” The Review of Financial Studies. Vol 2 No 4. pp 607-
623.
Easley, David, Nicholas Kiefer, Maureen O’Hara and Joseph Paperman. 1996. Liquidity,
Information and Infrequently Traded stocks. The Journal of Finance. Vol 51 No 4.
pp 1405-1436.
Francis, Jennifer, Donald Pagach, and Jens Stephan. 1992. “The Stock Market Response to
Earnings Announcements Released During Trading versus Nontrading Periods.” Journal
of Accounting Research. Vol 30 No 2. pp 165-184.
Greene, Jason and Susan Watts. 1996. “Price Discovery on the NYSE and the NASDAQ: The
Case of Overnight and Daytime News Releases.” Financial Management. Vol 25 No 1.
pp 19-42.
Neumark, David, P.A. Tinsley, and Suzanne Tosini. 1991. “After-Hours Stock Prices and Post-
Crash Hangovers.” The Journal of Finance. Vol 46 No 1. pp 159-178.
Patell, James and Mark Wolfson. 1982. “Good News, Bad News, and the Intraday Timing of
Corporate Disclosures.” The Accounting Review. Vol 57 No 3. pp 509-527.
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
Penman, Stephen. 1987. “The Distribution of Earnings News Over Time and Seasonalities in
Aggregate Stock Returns.” Journal of Financial Economics. Vol 18 No 2. pp 199-228.
Stoll, Hans R. 1989. “Inferring the Components of the Bid-Ask Spread: Theory and Empirical
Tests.” Journal of Finance. Vol. 44 No 1. pp 115-134.
Zdorovtsov, Vladimir. Dec 2003 version. University of South Carolina Working Paper. “Firm-
Specific News, Extended-Hours Trading and Variances over Trading and Nontrading
Periods.”
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This table shows regression results for the entire sample of after-hours sessions.
T-statistics are given in parenthesis. * represents statistical significance at the 90% confidence level. ** represents
statistical significance at the 95% confidence level. *** represents statistical significance at the 99% confidence
level.
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
N 140997
2
Adjusted R 0.2572
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This table shows regression results for the restricted samples of after-hours sessions.
AHreturn is calculated as / where represents the price of the last after-hours trade prior to the market opening for firm i
on day t, and is the closing price for firm i on day t-1. SmallMarketCap is a dummy variable which equals 1 if the stock is in MarketCap deciles 4, 5, or 6
and 0 otherwise. SmallMarketCapInteraction is calculated as SmallMarketCap times AHreturn.AHnegativeDum is a dummy variable that equals 1 if AHreturn <
0 and 0 otherise. AHnegativeInteraction is calculated as AHnegativeDum times AHreturn. LargeNumberOfTradesDum is a dummy variable which equals 1 if
there was more than a 2 standard deviation increase in the number of trades during that after-hours trading session relative to the mean number of trades during
all after-hours trading sessions for that stock during the year 2006; and 0 otherwise. LargeNumberOfTradesInteraction is calculated as LargeNumberOfTrades
* Ahreturn. OneLargeTradeDum is a dummy variable which equals 1 if there is a single trade during that after-hours session larger than the mean after-hours
trade size for that stock plus 2 standard deviations; and 0 otherwise. OneLargeTradeInteraction is calculated as OneLargeTradeDum * Ahreturn.
WeekendDummy is a dummy variable which equals 1 if the after-hours session is from Friday after 4pm to Monday at 9:30am; and 0 otherwise.
WeekendInteraction is calculated as WeekendDummy * Ahreturn.
T-statistics are given in parenthesis. * represents statistical significance at the 90% confidence level. ** represents statistical significance at the 95% confidence
level. *** represents statistical significance at the 99% confidence level.
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
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The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This table shows regression results for the restricted samples of after-hours sessions.
Return5Min = /
AHreturn is calculated as / where represents the price of the last after-hours trade prior to the market opening for firm i
on day t, and is the closing price for firm i on day t-1. SmallMarketCap is a dummy variable which equals 1 if the stock is in MarketCap deciles 4, 5, or 6
and 0 otherwise. SmallMarketCapInteraction is calculated as SmallMarketCap times AHreturn.AHnegativeDum is a dummy variable that equals 1 if AHreturn <
0 and 0 otherise. AHnegativeInteraction is calculated as AHnegativeDum times AHreturn. LargeNumberOfTradesDum is a dummy variable which equals 1 if
there was more than a 2 standard deviation increase in the number of trades during that after-hours trading session relative to the mean number of trades during
all after-hours trading sessions for that stock during the year 2006; and 0 otherwise. LargeNumberOfTradesInteraction is calculated as LargeNumberOfTrades
* Ahreturn. OneLargeTradeDum is a dummy variable which equals 1 if there is a single trade during that after-hours session larger than the mean after-hours
trade size for that stock plus 2 standard deviations; and 0 otherwise. OneLargeTradeInteraction is calculated as OneLargeTradeDum * Ahreturn.
WeekendDummy is a dummy variable which equals 1 if the after-hours session is from Friday after 4pm to Monday at 9:30am; and 0 otherwise.
WeekendInteraction is calculated as WeekendDummy * Ahreturn.
T-statistics are given in parenthesis. * represents statistical significance at the 90% confidence level. ** represents statistical significance at the 95% confidence
level. *** represents statistical significance at the 99% confidence level.
- 27 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
- 28 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This table shows regression results for the restricted samples of after-hours sessions.
Return1Hour = /
AHreturn is calculated as / where represents the price of the last after-hours trade prior to the market opening for firm i
on day t, and is the closing price for firm i on day t-1. SmallMarketCap is a dummy variable which equals 1 if the stock is in MarketCap deciles 4, 5, or 6
and 0 otherwise. SmallMarketCapInteraction is calculated as SmallMarketCap times AHreturn.AHnegativeDum is a dummy variable that equals 1 if AHreturn <
0 and 0 otherise. AHnegativeInteraction is calculated as AHnegativeDum times AHreturn. LargeNumberOfTradesDum is a dummy variable which equals 1 if
there was more than a 2 standard deviation increase in the number of trades during that after-hours trading session relative to the mean number of trades during
all after-hours trading sessions for that stock during the year 2006; and 0 otherwise. LargeNumberOfTradesInteraction is calculated as LargeNumberOfTrades
* Ahreturn. OneLargeTradeDum is a dummy variable which equals 1 if there is a single trade during that after-hours session larger than the mean after-hours
trade size for that stock plus 2 standard deviations; and 0 otherwise. OneLargeTradeInteraction is calculated as OneLargeTradeDum * Ahreturn.
WeekendDummy is a dummy variable which equals 1 if the after-hours session is from Friday after 4pm to Monday at 9:30am; and 0 otherwise.
WeekendInteraction is calculated as WeekendDummy * Ahreturn.
T-statistics are given in parenthesis. * represents statistical significance at the 90% confidence level. ** represents statistical significance at the 95% confidence
level. *** represents statistical significance at the 99% confidence level.
- 29 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
- 30 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This figure shows ReturnOpen relative to AHreturn for the observations such that AbsValue(AHreturn) > 2%. The blue lines are conditional on SmallMarketCap
being equal to 1. The dashed lines are conditional on LargeNumberOfTradesDum being equal to 1. OneLargeTradeDummy, OneLargeTradeInteraction,
WeekendDummy, and WeekendInteraction are all held constant at 0.
6
Return from last AH trade to Opening Trade (%)
2
Small Market Cap - high trading
Large Market Cap - high trading
0
Small Market Cap - normal trading
Large Market Cap - normal trading
-2
-4
-6
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
- 31 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This figure shows ReturnOpen relative to AHreturn for the observations such that AbsValue(AHreturn) > 2%. The blue lines are conditional on SmallMarketCap
being equal to 1. The dashed lines are conditional on LargeNumberOfTradesDum being equal to 1. OneLargeTradeDummy, OneLargeTradeInteraction,
WeekendDummy, and WeekendInteraction are all held constant at 0.
2
Small Market Cap - high trading
-4
-6
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
- 32 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This figure shows ReturnOpen relative to AHreturn for the observations such that AbsValue(AHreturn) > 2%. The blue lines are conditional on SmallMarketCap
being equal to 1. The dashed lines are conditional on LargeNumberOfTradesDum being equal to 1. OneLargeTradeDummy, OneLargeTradeInteraction,
WeekendDummy, and WeekendInteraction are all held constant at 0.
2
Small Market Cap - high trading
-4
-6
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
- 33 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This figure shows ReturnOpen relative to AHreturn for the observations such that AbsValue(AHreturn) > 2%. The blue lines are conditional on SmallMarketCap
being equal to 1. The dashed lines are conditional on LargeNumberOfTradesDum being equal to 1. OneLargeTradeDummy, OneLargeTradeInteraction,
WeekendDummy, and WeekendInteraction are all held constant at 0.
2
Small Market Cap - high trading
-4
-6
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
- 34 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This figure shows ReturnOpen relative to AHreturn for the observations such that AbsValue(AHreturn) > 2%. The blue lines are conditional on SmallMarketCap
being equal to 1. The dashed lines are conditional on LargeNumberOfTradesDum being equal to 1. OneLargeTradeDummy, OneLargeTradeInteraction,
WeekendDummy, and WeekendInteraction are all held constant at 0.
2
Small Market Cap - high trading
-4
-6
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
- 35 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This figure shows Return5Min relative to AHreturn for the observations such that AbsValue(AHreturn) > 2%. The blue lines are conditional on SmallMarketCap
being equal to 1. The dashed lines are conditional on LargeNumberOfTradesDum being equal to 1. OneLargeTradeDummy, OneLargeTradeInteraction,
WeekendDummy, and WeekendInteraction are all held constant at 0.
5-Minute Return:
Small vs Large Market Caps
Normal Trading vs High Trading
8
Return from last AH trade to Opening Trade (%)
2
Small Market Cap - high trading
-4
-6
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
- 36 -
The Cost of Illiquidity: Evidence from After-Hours Trading Walkup
This figure shows Return1Hour relative to AHreturn for the observations such that AbsValue(AHreturn) > 2%. The blue lines are conditional on
SmallMarketCap being equal to 1. The dashed lines are conditional on LargeNumberOfTradesDum being equal to 1. OneLargeTradeDummy,
OneLargeTradeInteraction, WeekendDummy, and WeekendInteraction are all held constant at 0.
1 Hour Return:
Small vs Large Market Caps
Normal Trading vs High Trading
8
Return from last AH trade to Opening Trade (%)
2
Small Market Cap - high trading
-4
-6
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
- 37 -