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A Mechanical Explanation of Share Price Path Selection

Mohamed Abdel Maksoud

posted on 02 October 2012

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The purpose of this paper is to explain share price movement in the short term based on the interaction of historical traded volumes and the associated traded values; both of which constitute the internal structure of the market for the particular security that is built on two premises: The distribution of volume at different points in time' The excess/deficit in initial liquidity generated from trading. Such interaction results in an equilibrium price that changes with time. A persistent positive difference between VWAP at different points and the respective equilibrium price raises price by an amount equal to the average difference. Conversely, a negative difference will push price downwards.