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Abstract
Almost all U.S. firms now announce earnings outside of regular trading hours. This article studies how stock prices incorporate information in after-hours trading. The author finds slow price adjustment accompanied by significant trading volume. During the 2002–2012 period, 5,881 rule-based trading opportunities generated an average return of 1.53% within four hours. After costs (assessed by a trading experiment), an investor who properly exploited the slow adjustment beat the market by 11.5% a year. The slow price adjustment persists under various levels of investor inattention, limited arbitrage capital, and short-sale constraints.
TOPICS: Fundamental equity analysis, exchanges/markets/clearinghouses
- © 2016 Institutional Investor, Inc.
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