Is the Opening Price Efficient? Evidence from After-Hours Earnings Announcements

We examine stock market returns at short intervals following after-hours earnings announcements to determine whether the opening price set by NYSE market makers is efficient. Our tests of return volatility, correlation of the close-to-open return with subsequent returns, and trading strategies all lead to the same conclusion. The opening price set by market makers for our sample of large-cap, heavily traded stocks is highly efficient. Our results suggest trading is not necessary to reveal fully earnings news and may explain why in recent years most firms issue their earnings announcements while the market is closed