1
$\begingroup$

example graph

With reference to the figure above, why is it that the price at which the stock closed at on monday not equal to the open price on tuesday?

Is this discontinuity due to an adjustment in the price to make up for pre/post market volume? If not then why does this occur?

$\endgroup$
3
$\begingroup$

Typically due to news overnight, and sometimes, as you suggest, after hours trading. The stock prices you see in the chart are the prices at which trades occurred. Trades are discrete events, at discrete prices. The discontinuities you see in the chart are simply due to the market agreeing a different price on the following day. Those discontinuities occur intraday too, however, they are not as visible simply due to the way the chart is drawn - with connecting lines between the prices.

$\endgroup$
  • $\begingroup$ when you say "market agreeing on a different price", what particularly determines the exact scale of that price adjustment? As you said the stock market is discrete by nature so there must be some quantifiable method used to determine the price the stock is gonna be adjusted to. could you please point me to any literature or information regarding this? @Steinwolfe $\endgroup$ – Mustard Tiger Apr 9 '16 at 17:13
  • $\begingroup$ Traders in the market place buy and sell orders for shares, at whatever prices they choose. If a match is found - a trade occurs. Just like at a market. Thus supply and demand determines the prices at which trades occur. Here are some answers from google.See here and here for some online explanations. Does that answer your question, or am I missing the point? $\endgroup$ – Steinwolfe Apr 9 '16 at 18:06
  • $\begingroup$ Thank you, yes that does answer the question. So just to clarify an additional thing, If someone were to assess the performance of a stock on a given day, say tuesday. would they look at close price on wednesday vs the close on tuesday? Or would it be the open price on tuesday vs the close price on tuesday? @Steinwolfe $\endgroup$ – Mustard Tiger Apr 9 '16 at 20:15
  • $\begingroup$ Daily performance is typically measured as the change in price since yesterday's close. When something significant happens , financial shows like Bloomberg or CNBC, will look at how much a stock has moved during the day (e.g. X is up 5% today since release of its earnings last night). Sometimes people will talk about intraday performance - specifically how it is moving within the day (since open) but usually today's performance is based on yesterday's close, and that is the daily %age number you will see the most. $\endgroup$ – Steinwolfe Apr 10 '16 at 0:58

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.