One day in the life of a very common stock

Using the model structure of Easley and O'Hara (Journal of Finance, 47, 577-604), we demonstrate bow the parameters of the market-maker's beliefs can be estimated from trade data. We show how to extract information from both trade and no-trade intervals, and how intraday and interday data provide information. We derive and evaluate tests of model specification and estimate the information contest of differential trade sizes. Our work provides a framework; for testing extant microstructure models, shows how to extract the information contained in the trading process, and demonstrates the empirical importance of asymmetric information models for asset prices.