Assessing an After-Hours Trading Anomaly and Its Arbitrage Limits

Summary

The document raises questions about a claimed trading anomaly that appears to involve buying securities after hours and selling during regular market hours. It identifies transaction costs, especially potentially different costs in after-hours trading, as a factor that could reduce or eliminate the apparent opportunity. It also asks whether the strategy would remain profitable after those costs.

The discussion considers why an apparent arbitrage might persist despite market efficiency, including whether large firms could access better execution than individual investors. It also asks whether the described trading would be legal and notes uncertainty around the article’s publication history. The text presents questions rather than answers: it supplies no strategy details, data, performance results, or legal analysis. Evaluating the claim would require examining the original method, realistic costs, execution access, and applicable rules.

Key ideas

• Transaction costs can determine whether an apparent after-hours trading anomaly is profitable.
• Differences in execution access may affect whether institutions and individual investors can exploit the same opportunity.
• A claimed arbitrage requires evidence that profits survive realistic costs and execution constraints.
• The document raises legal and publication questions but does not resolve them.

Tags

# questions after reading the article by knuteson


# questions after reading the article by knuteson












I recently read this article by Knuteson and some thought/questions arose. So I was wondering if anyone read it or wants to read it and can comment on a few statements-questions below. I could probably email the author and I'm confident that he would have some answers but I'd like to hear from an unbiased audience. Thanks.

- Could the anomaly be due to transaction costs ? He says that the code and data are right there for anyone to use but he doesn't talk about transaction costs at all. I know nothing about the after hours market so could that be a possibility ? Maybe they are off the charts higher than transaction costs during market hours ?

- If what he says is true ( even with transaction costs ), then, one would think that such an arbitrage would be removed due to market efficiency ? Would some large form be able to do what he says and an individual investor not be able to do the same thing ?

- If some large firm is doing what he describes, is that illegal ? It doesn't sound illegal to me: Buy during after market hours and sell during open market hours ?

Thanks for any comments-insights.

P.S. : He doesn't talk much about the attempt to publish so my guess is that there are problems-issues with it. I would think that some decent refereed academic publisher would want to publish it, despite the reasons he gives for why it's not out there.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.