After-Hours Trading and the Indvidual Investor

Abstract

This study examines the relationship between extended-hours trading and trading during the regular period by investigating the characteristics of the Nasdaq market. The measures of market quality include returns distributions, daily volatility, overnight volatility, and trading volume. The results of normality testing reveals that both day and evening return series likely come from a normal distribution. However, there is evidence that volatility is much greater during the extended trading period. It is also found that while volume and volatility are highly correlated during the day, the former decreases much more rapidly in the evening trading period. Finally, investigations of overnight volatility indicate that the existence of the after-hours market has caused significant price fluctuations in the following day's opening price. The findings in this study warn the individual investor that the convenience benefits derived from being able to execute trades after-hours are outweighed by the added risk and should therefore be left to institutional investors.