Why do stocks open at prices different from where they closed?September 28, 2012: 6:30 AM ET
Why don't stocks open tomorrow at the same price they closed at today? – Don S.
"Just because the bell rings at four o'clock doesn't mean the market closes," says John Frye, Chief Investment Officer of Beverly Hills-based Crane Asset Management. These days, the expansion of online trading has helped fuel a 24-hour trading cycle.
As a result, stock prices continue to adjust to any relevant news — from developments in the European debt crisis to updated earnings reports and other company-specific news. Another contributing factor: Many American companies are listed on overseas stock exchanges, and movements in those markets after the U.S. markets close can have a big impact on stock prices by the time trading opens in the U.S. the following morning.
Frye concedes that on occasion there are attempts to manipulate prices up and down. "But mispricing tends to correct itself within a matter of minutes," he says. "If a stock price doesn't reflect the true value of the underlying company, smart investors will figure it out and profit from the mispricing."
— Marc Mewshaw
Got a question for the Help Desk? Send it to firstname.lastname@example.org.