Price Discovery and Trading Costs After Hours

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Abstract
This paper examines the trading process outside of normal trading hours. Although after-hours trading volume is small, after-hours trades are more informative than trades during the day, and are associated with significant price discovery. Spread-related trading costs are also more than twice as large after hours than during the trading day. For Nasdaq-listed stocks, we observe two separate trading processes in the after-hours market: larger less-informative trades are negotiated directly with market markers and smaller more-informative trades are executed anonymously on electronic communications networks. Although both trading processes are active after the close and before the open, the non-anonymous liquidity-motivated trades are more prevalent after the close and the anonymous information-motivated trades are more prevalent before the open.