Abstract
This chapter investigates the impact of after-hours trading (AHT) on the magnitude and timing of price discovery on the world’s largest carbon trading platform, the ECX. Low volume trading in carbon financial instruments (CFI) can lead to disproportionately high levels of price discovery; however, the generated pricing has low-efficiency levels. This is associated with high levels of informed trades coupled with low levels of liquidity trades. Results obtained show evidence of higher trading volume per minute and higher price efficiency for after-hours when compared with regular trading hours (RTH). As a result of a higher proportion of informed trades, adverse selection costs for trades during the after-hours are significantly larger than those for trades during the regular trading day.
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