Stocks & Commodities V. 26:7 (48-52): After-Hours Trading with Victoria Wang

Stocks & Commodities V. 26:7 (48-52): After-Hours Trading with Victoria Wang
Item# \V26\C07\138WANG.PDF
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After-Hours Trading with Victoria Wang

Stock prices tend to fluctuate dramatically after the market close, when companies release important news or statements. Find out how you can understand and determine the relationship between after-hours activity and the following day’s closing price.

After-hours trading” refers to trading activity that takes place after normal trading hours from 9:30 AM to 4:00 PM Eastern time. With the development of electronic communication networks (ECNs) and the availability of online after-hour trading provided by brokerage firms, investors and traders are able to take part in after-hours trading. Stock prices tend to fluctuate dramatically during the after-hours period when companies release important news or statements following the market’s close. Poor earnings announcements or other unfavorable news may immediately drive the price down significantly. Conversely, good news may boost demands for the stock. Understanding and determining the relationship between an after-hours price movement and the following day’s closing price will provide valuable information to savvy traders. This article studies the effect of an after-hours price movement on the next day’s closing for the underlying stocks. It is the second of a systematic study of stock market price patterns. (See my July 2007 S&C article for the first.)

DATA COLLECTION

After-hours trading activity was analyzed from a dataset collected between February 8, 2006, and June 21, 2007. It was downloaded from the NASDAQ website every evening after the close of after-hours trading. The collected data includes the price of the stock at the close of after-hours trading, termed “current price,” the price percentage change of its current price relative to its closing price that day at 4:00 PM, the after-hours trading volume, and the following day’s closing price during normal trading hours.




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