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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.

  1. 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 ?

  2. 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 ?

  3. 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.

mark leeds
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  • Knuteson's points have been discussed in some detail in the comments to Andrew Gelman's blog post here. See Dale Lehman's point about dividends. Back then I send Knuteson an e-mail asking about that point, he assured me that was not a problem. I did not get in the details of his explanation in the e-mail, though, so who knows... – Richard Hardy Feb 25 '24 at 19:14
  • Thanks Richard. I'll check that out but still welcome other people's insights. Nothing against Andrew's blog ( I don't subscribe but I've read a few things ) but there are people here who are well qualified to answer and may not subscribe to it. dividends is another possibility ? It seems too strong to me but I know zippo about after market hours. I was more interested if whatever oddity was going on after market is effecting the open market hours. Another thing to wonder is whether the same result has held since the paper was put on ssrn. Thanks again. – mark leeds Feb 25 '24 at 20:44
  • the key things I read based on the comments in the blog ( for people who don't want to be bothered readng so many comments ) is that 1) the effect has gone away since the article was published [evidence is not provided though] and 2) the last comment seemed to show that for the example the commenter pulled out, the whole difference was due to dividends. Given these points, people may not want to be bothered wasting their time. I don't know. But comments are still appreciated. – mark leeds Feb 25 '24 at 21:15
  • Sure, and I did not mean to present the blog as the only source you should check out. I am curious to read other answers myself. – Richard Hardy Feb 26 '24 at 08:40

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