%0 Journal Article
%T Quantifying Stock Price Response to Demand Fluctuations
%A Vasiliki Plerou
%A Parameswaran Gopikrishnan
%A Xavier Gabaix
%A H. Eugene Stanley
%J Quantitative Finance
%D 2001
%I arXiv
%R 10.1103/PhysRevE.66.027104
%X We address the question of how stock prices respond to changes in demand. We quantify the relations between price change $G$ over a time interval $\Delta t$ and two different measures of demand fluctuations: (a) $\Phi$, defined as the difference between the number of buyer-initiated and seller-initiated trades, and (b) $\Omega$, defined as the difference in number of shares traded in buyer and seller initiated trades. We find that the conditional expectations $<G >_{\Omega}$ and $<G >_{\Phi}$ of price change for a given $\Omega$ or $\Phi$ are both concave. We find that large price fluctuations occur when demand is very small --- a fact which is reminiscent of large fluctuations that occur at critical points in spin systems, where the divergent nature of the response function leads to large fluctuations.
%U http://arxiv.org/abs/cond-mat/0106657v1