Abstract
This study examines empirically the degree to which the history of daytime and overnight price changes and order flow affects estimates of traders' beliefs about future security price changes. Estimates indicate that forecasts of the permanent component of price changes occurring after the open of trading are significantly related to past price changes and order flow; but the same is not generally true for price changes occurring after the close. These results are consistent with models of technical analysis, and models in which the process of trading facilitates price discovery. The evidence also suggests that private information is an important determinant of price movements.
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