RT Journal Article
SR Electronic
T1 Behind Stock Price Movement: <em>Supply and Demand in Market Microstructure and Market Influence</em>
JF The Journal of Trading
FD Institutional Investor Journals
SP 13
OP 23
DO 10.3905/jot.2015.10.3.013
VO 10
IS 3
A1 Jingle Liu
A1 Sanghyun Park
YR 2015
UL https://pm-research.com/content/10/3/13.abstract
AB This article studies explanatory factors for short-term stock price movement in the U.S. equity market by exploiting the relationship among liquidity supply, liquidity demand, and market movement. Liquidity provision and taking activities at the market-microstructure level are quantitatively measured by central limit order book imbalance and trade imbalance. The authors find that a multivariate linear model, fitted on empirical results of 42 individual U.S. stocks, is able to explain up to 78% of stock movement in short time intervals, with its explanatory powers and model coefficients varying with the length of interval ranging from 30 seconds to 1 hour. This study offers insight in quantifying supply-demand dynamics in market microstructure and provides meaningful ways for trading algorithms to minimize the market impact of orders and maximize liquidity extraction.TOPICS: Security analysis and valuation, statistical methods