Is after-hours trading informative?

Ulibarri, Carlos A. (1998): Is after-hours trading informative? Published in: Journal of Futures Markets , Vol. 18, No. 5 (1998): pp. 563-579.

Abstract

This article investigates price and trading volume relations for near term crude oil contracts at the New York Mercantile Exchange (NYMEX). The study investigates the informativeness of after-hours trading under the prior assumption that daytime and after-hours trading sessions are completely segmented. The research methodology uses a vector autoregressive (VAR) structural model to identify the lead/lag structure between the leading overnight session and the lagging daytime session. This framework permits us to impose testable restrictions in considering the view that after-hours price changes and trading volumes provide contemporaneous information in the daytime price discovery process. Furthermore, the reduced-form VAR allows testing whether innovations (surprises) in daytime prices and trading activity influence overnight price/volume behavior.

• Item Type: MPRA Paper
• Language: English
• Keywords: futures markets; after hour trading; structural var model
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing

References

Bernanke, B. S. (1986): “Alternative Explanations of the Money Income Correlation,” Carnegie–Rochester Conference Series on Public Policy, (Autumn): 49–100.

Blanchard, O. J., and Watson, M. W. (1986): “Are Business Cycles All Alike?” in The American Business Cycle: Continuity and Change, Gordon, R. J. (ed.) (pp. 123–179). Chicago: University of Chicago Press.

Burns, B. P. (1997): “Volume Highlights,” in Futures Industry, Futures Industry Association, Inc., vol. 7, no. 2:14–24.

Cambell, J. Y., Grossman, S. F., and Wang, J. W. (1993): “Trading Volume and Serial Correlation in Stock Returns,” Quarterly Journal of Economics, vol. 108, no. 4 (November):905–939.

Commodity Futures Trading Commission (CFTC) (1992): Memorandum from the CFTC Division of Trading and Markets Recommending Approval of NYMEX’s Automated Trade Matching System. December 7, 1992.

Dickey, D., and Fuller, W. A. (1981): “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root,” Economitrica, 49:1057–1072.

Enders, W. (1995): Applied Econometric Time Series. New York: John Wiley & Sons.

Engel, R. F., III (1982): “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of U.K. Inflation,” Econometrica, 50:987–1008.

Gallant, A. R., Rossi, P. E., and Tauchen, G. (1992): “Stock Prices and Volume,” Review of Financial Studies, 51:199–242.

Granger, C. W. (1969): “Investigating Causal Relations by Econometric Models and Cross-Spectral Methods,” Econometrica, 37:424–438.

Grunbichler, A., Longstaff, F. A., and Schwartz, E. S. (1994): “Electronic Screen Trading and the Transmission of Information: An Empirical Examination,” Journal of Financial Intermediation, 3:166–187.

Jain, P. C., and Gun-Ho Joh, J. (1988): “The Dependence between Hourly Prices and Trading Volume,” Journal of Financial and Quantitative Analysis, 22:269–283.

Karpoff, J. M. (1987): “The Relation between Price Changes and Trading Volume: A Survey,” Journal of Financial and Quantitative Analysis, 22:109–126.

Keating, J. W. (1992): “Structural Approaches to Vector Autoregressions,” Federal Reserve Bank of St. Louis Quarterly Review, vol. 74, no. 5 (September/October):37–57.

Sims, C. A. (1980): “Macroeconomics and Reality,” Econometrica, 48:1–49.

Sims, C. A. (1986): “Are Forecasting Models Usable for Policy Analysis?” Federal Reserve Bank of Minneapolis Quarterly Review, (Winter):2–16.

Stephan, J. A., and Whaley, R. E. (1990): “Intraday Price Change and Trading Volume Relations in the Stock and Option Markets,” Journal of Finance,45(1):191–220.

Tauchen, G. E., and Pitts, M. (1983): “The Price Variability-Volume Relationship on Speculative Markets,” Econometrica, 51:485–505.

Zellner, A. (1984): “Causality and Econometrics,” Basic Issues in Econometrics (pp. 35–74). Chicago: University of Chicago Press.