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Why Stock Prices Move Before and After Regular Trading Hours

Article Quant Q&A · Author: Tan Yong Boon
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Summary

The document explains why stock prices can change when an exchange’s regular session is closed. New information can alter expectations about a company’s value or the conditions affecting it, so investors may revise the prices they are willing to trade at. These moves do not have to be caused by stock futures.

Trading and quote activity may continue through other venues or after-hours arrangements, and some prices may update as trades are cleared. Because activity and transparency are reduced outside regular hours, observed prices can be less informative than prices formed in the main session. When regular trading resumes, prices may move quickly toward levels implied by the information and activity that accumulated while the exchange was closed.

The explanation is conceptual rather than a detailed account of exchange schedules, trading systems, or the mechanics of a specific stock. It emphasizes that prices reflect changing expectations, while the reliability and visibility of price discovery depend on the market and time of day.

Key ideas

  • New information can change expectations about a stock’s value even while its primary exchange is closed.
  • After-hours prices may come from trading or quote activity outside the regular session.
  • Lower transparency and activity can make out-of-hours prices less informative.
  • Prices may adjust rapidly when regular trading resumes.

Tags

EquitiesMarket microstructureExecution
Full text
# Why do prices of stocks change "premarket" and during "after hours"


# Why do prices of stocks change "premarket" and during "after hours"












How is it possible for there to be trading "premarket" and "after hours"? I thought the exchange is closed and thus trading during "premarket" and "after hours" is impossible. Are such price changes "premarket" and "after hours" caused by changes in stock futures?

## Answer by will (score 1)

https://quant.stackexchange.com/a/55069

The value of things change continuously. Take for example oil. It can close on Friday at $50/bbl, and then on Saturday the Saudis could have one of their large processing facilities destroyed. This would have a meaningful impact on the global supply and demand balance, such that you, and everyone else, can reasonably expect that the supply has been reduced, and so the price can be expected to be higher.

The transparency in the market is for sure reduced out of hours, you cannot just use the exchange for price discovery, even on exchanges where the bid/offer can be changed outside of hours without trading (which gives you some idea of the level), because there is no trading the setting of the prices means considerably less. But this is another point.

What you will see is that upon opening, the price will quickly move to be in line with those previously mentioned expected (different from the closing) levels. In some cases, where the exchange is closed but you're able to clear out of hours, the price may be updated out of trading hours as trades are cleared.

As for "how is it possible", this is just infrastructure and people not arbitrarily saying "sorry, closed, can't help."

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.