@article {Liu13, author = {Jingle Liu and Sanghyun Park}, title = {Behind Stock Price Movement: Supply and Demand in Market Microstructure and Market Influence }, volume = {10}, number = {3}, pages = {13--23}, year = {2015}, doi = {10.3905/jot.2015.10.3.013}, publisher = {Institutional Investor Journals Umbrella}, abstract = {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}, issn = {1559-3967}, URL = {https://jot.pm-research.com/content/10/3/13}, eprint = {https://jot.pm-research.com/content/10/3/13.full.pdf}, journal = {The Journal of Trading (Retired)} }