How does after-hours trading affect the next session prices? [closed]

I just read about after-hours trading (and here ), but remain unclear as to what happens to the price level of the next open session. In other words,

Do the prices change during after-market hours? (Or do they remain independent?)

• What do you mean "the next real session", the buying and selling at night is not real to you ? May 27 '18 at 22:43
• @AlexC I changed the word to open for your satisfaction. May 28 '18 at 10:23
• If nothing else after-hours trading is a statement about market expectations and expectations underlie everything wrt markets (and much else in human behavior for that matter). May 28 '18 at 12:22
• I see my question was closed as OT due to beginner status. Where would be a more appropriate place for these types of questions? Jun 4 '18 at 7:15

Yes, prices change overnight. A great reference on the issue is Lou, Polk and Spouras (2018).

They basically argue that there are investors who prefer to trade overnight whereas other prefer to trade during the day:

For example, and as the primary focus in our analysis, some investors may prefer to trade at or near the morning open while others may prefer to trade during the rest of the day up to and including the market close. Since these two periods when the market is open vs. when it is closed differ [?] along several key dimensions, including information on [?], price impact, and borrowing costs, it seems likely that many aspects of investor heterogeneity that might be relevant for asset pricing also manifest as a tendency to trade in one of these periods rather than the other. In this light, the presence of overnight and ìntraday clienteles seems a reasonable and perhaps even natural starting point.

Indeed it also seems that many known trading strategies earn most of their returns overnight rather than when markets are open. Take a look at their table II:

• great piece of information! May 28 '18 at 18:23

In short. Yes. the prices do change, but not all symbols trade, volume and liquidity is generally much lower with wider spreads. I would personally DE-emphasize the price action unless there is trading after release of earnings-- where volume is significant as there is more noise with larger spreads even on liquid issuers a relatively small buyer/seller can move the market after hours.

The opening session is driven more by futures markets if single issue futures are available or algos trading correlations with index futures-- but ultimately the closing price has nothing to do with where the open is. The open is created by the pre-open limit order levels and whoever hits the bid or ask with a market order first makes the print for the open.

• So could this be summarized with the following example? Some stock, e.g. aapl closes trades today at, let's say USD 150. Then after-hours trades occur, where people have been selling volumes at ~130, after hearing about some negative after-hour news. Will tomorrows opening price still be at 150, or will it reflect the after-hour trades? (Also, I am ignoring the obvious run for the money during the 1st minutes of opening.) May 28 '18 at 10:33
• Why would anyone sell at 130 if the stock were likely to open next day at 150?
– dm63
May 28 '18 at 12:08
• market prices are made by two parties they have a bid and and an ask for example: person 1 puts in a LIMIT buy order and wants a price of 130.00 , another person has a limit sell at 130.01, the market sits there and will do NOTHING until another person comes in and puts in a market order to buy at 130.01 or a sell at 130.00 which prints the opening price.... close has NOTHING to do with the open, other than peoples tendency to think the stock is likely worth close to what it closed yesterday.... which makes close and open prices relatively similar. Jun 15 '18 at 2:19
• I would recommend you look at illiquid markets to understand this. There are companies that have bid and asks out, but never trade Jun 15 '18 at 2:25