Horses have several base colours, which form the foundation for all other colours. They are created by two genes: extension and agouti. Extension is the cause of two separate pigments: red and black. The second gene, agouti, decides where the black pigment (if any is present) is located on the body, resulting in a combination of the two colours red and black.
The extension gene is responsible for the pigment colours eumelanin (black) and pheomelanin (red). Black is caused by the E-allele, which is dominant, while red is formed by the e-allele, which is recessive to black.
A black horse needs at least one copy of the E-allele, which is responsible for the black pigment eumelanin. A common black horse is therefore black all over, including the coat, mane, tail and other points. Due to diet, genetic and environmental factors, black can sometimes appear 'sun-bleached' with red or other coloured hairs throughout the coat.
A chestnut horse has nothing but red pigment, from its legs to its ears. This pigment does not always appear as pure red, but it can range from yellow to nearly black, caused by both genetic as well as environmental factors which are not yet all known.
The agouti gene takes the black pigment and moves it across the body of the horse, resulting in patches where red pigment can 'reappear'. It can therefore only work on black pigment, and as a result needs at least one copy of the E-allele to function.
The best-known variation of agouti. Bay horses can have any shade from light to dark, though dark variations may also be influenced by sooty. It is unknown whether the bay phenotypes are genetically distinct, or multiple variations caused by other factors.
Wild bay, or light bay, is the least known and rarest version of bay. It separates itself from any other bay horse by its very short black points. In other agouti horses, the black on the lower legs extends to the knee. In wild bay horses, the black does not get any higher than the socks. Often the coat, mane and tail are also lighter.
It is possible wild bay is dominant over any other variations of bay. This is not yet ascertained.