We examine the effects of trading after hours on the amount and timing of price discovery over the 24-hour day. A high volume of liquidity trade facilitates price discovery. Thus prices are more efficient and more information is revealed per hour during the trading day than after hours. However, the low trading volume after hours generates significant, albeit inefficient, price discovery. Individual trades contain more information after hours than during the day. Because information asymmetry declines over the day, price changes are larger, reflect more private information, and are less noisy before the open than after the close.

Corporations uniquely have a tax preference for cash dividends. Nevertheless, dividends do not increase following trades of large-percentage blocks of stock from individuals to corporations. Moreover, although one-third of firms have corporate blockholders, 68% of these firms pay no dividends, and ownership is not clustered at levels that increase the tax benefits of dividends. These findings are not driven by the investing firms' tax rates or by agency problems. Instead, operating companies expand the target firms and pursue joint ventures. Dividends are lower with these investors. Financial investors are not attracted to dividend-paying firms and tend to be passive. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: [email protected]., Oxford University Press.

[Corporations uniquely have a tax preference for cash dividends. Nevertheless, dividends do not increase following trades of large-percentage blocks of stock from individuals to corporations. Moreover, although one-third of firms have corporate blockholders, 68% of these firms pay no dividends, and ownership is not clustered at levels that increase the tax benefits of dividends. These findings are not driven by the investing firms' tax rates or by agency problems. Instead, operating companies expand the target firms and pursue joint ventures. Dividends are lower with these investors. Financial investors are not attracted to dividend-paying firms and tend to be passive.]

We examine the effects of trading after hours on the amount and timing of price discovery over the 24-hour day. A high volume of liquidity trade facilitates price discovery. Thus prices are more efficient and more information is revealed per hour during the trading day than after hours. However, the low trading volume after hours generates significant, albeit inefficient, price discovery. Individual trades contain more information after hours than during the day. Because information asymmetry declines over the day, price changes are larger, reflect more private information, and are less noisy before the open than after the close.

[New evidence is provided on the determinants of stock-return variances. First, when the Tokyo Stock Exchange is open on Saturday, the weekend variance increases; weekly variance is unaffected, however, despite an increase in weekly volume. Second, the listing of U.S. stocks in Tokyo substantially increases the number of trading hours, but Tokyo volume is negligible for these U.S. stocks and their 24-hour variance is unaffected. The overall results are consistent with the predictions of private-information-based rational trading models, but inconsistent with both the irrational trading noise and public-information hypotheses.]

New evidence is provided on the determinants of stock-return variances. First, when the Tokyo Stock Exchange is open on Saturday, the weekend variance increases; weekly variance is unaffected, however, despite an increase in weekly volume. Second, the listing of U.S. stocks in Tokyo substantially increases the number of trading hours, but Tokyo volume is negligible for these U.S. stocks and their 24-hour variance is unaffected. The overall results are consistent with the predictions of private-information-based rational trading models, but inconsistent with both the irrational trading noise and public-information hypotheses.