Journal of Economics and Finance

, Volume 31, Issue 2, pp 234–249 | Cite as

Estimating the determinants of stock price changes

  • C. N. V. Krishnan


I develop an approach for estimating the determinants of stock price changes that uses all eligible trade data and other observable parameters of market activity. This approach backs out the unobserved continuous price change distribution from the observable discrete price changes, and does not constrain the determinants to be proportions of the traded bid-ask spread. I show that theoretically impermissible results and skewed estimates of cost components are obtained when the model used for estimating the determinants of stock price changes does not attempt to uncover the mapping between the observed price changes and the underlying unobserved continuous price change process, and does not effectively use all eligible trade data.


Price Change Adverse Selection Market Maker Trade Size Trade Direction 
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Copyright information

© Academy of Economics and Finance 2007

Authors and Affiliations

  • C. N. V. Krishnan
    • 1
  1. 1.Department of Banking and FinanceCase Western Reserve UniversityCleveland

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