Demand curves for stocks do not slope down: Evidence using an exogenous supply shock

Jain, Ankit; Tantri, Prasanna L.; Thirumalai, Ramabhadran S.

doi:10.1016/j.jbankfin.2019.03.012

Cited by 9 publications

(3 citation statements)

References 28 publications

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“…Consistent with EMH, some supported that the immediate rise in stock prices is short-termed due to auto-correction of market frictions by the arbitrage forces, flattening the demand curve (Harris and Gurel, 1986). On the other hand, studies supported a gradual and permanent shift in stock prices (Jain et al, 2019). We can observe that literature conflicts on either there is a temporary priceimpact or a permanent price-impact.…”

Section: Review Of Literature and Hypothesesmentioning

confidence: 75%

Economic Consequences of Section Transfers in Japan: Change in Investor Base

Abo¹

2021

Journal of Finance and Investment Analysis

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Transfer of stocks to a more regulated section within the same stock exchange is a quasi-natural experiment that enhances the investor base of companies. The purpose of this paper is to examine for the first time this investor base change and its price-impact. Considering the Japanese Exchange Group merger in 2012 and its structural amendments, the author uses a final sample of 181 firms between 2014-2019. An event study methodology is used to examine the abnormal returns and trading activity in relation to the investor base change proxy. The study also uses robust MM regression analysis to investigate whether the expected price-impact has is temporary or permanent. The results demonstrate that companies that had the largest positive shift in investor base also experienced the largest positive abnormal returns (+ 3.74%) and volume gains. Crucially, the author found no evidence of reversal of this price-impact, inconsistent with the price-pressure hypothesis. Instead, the increase in stock prices caused by section transfer to a more regulated section seems to be permanent. Keywords: Section transfers, More regulated section, TSE1, TSE2, Investor Base Change, Permanent price-impact.

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Section: Review Of Literature and Hypothesesmentioning

confidence: 75%

Economic Consequences of Section Transfers in Japan: Change in Investor Base

Abo¹

2021

Journal of Finance and Investment Analysis

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“…Focusing on large stocks, all three studies present evidence supporting the downward-sloping demand curve hypothesis. In contrast, Jain et al. (2019) report the results consistent with the flat demand curve by examining stock price reactions to the sales of shares by insider blockholders prompted by a regulatory change in India.…”

Section: Previous Researchmentioning

confidence: 87%

Does the S&P index effect differ between large and small company stocks?

Biktimirov

2023

IJMF

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PurposeThe purpose of this study is to compare market reactions to the change in the demand by index funds between large and small company stocks by examining the transition of the S&P 500, S&P 400 MidCap and S&P 600 SmallCap indexes from market capitalization to free-float weighting. This unique information-free event allows not only avoiding confounding information signaling and investor awareness effects but also comparing the effect of the decrease in demand on stocks of different sizes.Design/methodology/approachThis study uses the event study methodology to calculate abnormal returns and trading volume around the full-float adjustment day. It also tests for significant changes in institutional ownership and liquidity. Multivariate regressions are used to examine the relation of liquidity changes and price elasticity of demand to the cumulative abnormal returns around the full-float adjustment day.FindingsThis study finds significant decreases in stock price accompanied with significant increases in trading volume on the full-float adjustment day, and significant gains in quasi-indexer institutional ownership and liquidity. The main finding is that cumulative abnormal returns around the event period are related to changes in the number of quasi-indexer and transient institutional shareholders, not to changes in liquidity or price elasticity of demand.Originality/valueThis study provides the first comprehensive comparison analysis of stock market reactions to the decline in demand between large and small company stocks. As an important implication for future studies of the index effect, changes in institutional ownership should be considered in the analysis.

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“…There is an ongoing debate on whether demand curves for stocks slope down. Empirical analyses fromShleifer (1986),Kaul et al (2000),Petajisto (2009) andBuss et al (2021) support this conjecture, but those inCha and Lee (2001) andJain et al (2019) do not Wurgler and Zhuravskaya (2002). conclude that it depends on whether or not the stock has substitutes on the market.…”

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confidence: 99%

Characteristics-driven returns in equilibrium

Coqueret¹

2022

Preprint

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We reverse-engineer the equilibrium construction process of asset prices in order to obtain returns which depend on firm characteristics, possibly in a linear fashion. One key requirement is that agents must have demands that rely separately on firm characteristics and on the log-price of assets. Market clearing via exogenous (non-factor driven) supply, combined with linear demands in characteristics, yields the sought form. The coefficients in the resulting linear expressions are scaled net aggregate demands for characteristics, as well as their variations, and both can be jointly estimated via panel regressions. Conditions underpinning asset pricing anomalies are derived and underline the theoretical importance of the links between characteristics. Empirically, when the number of characteristics is small, the value and momentum anomalies are mostly driven by firm-specific fixed-effects, i.e., latent demands, which highlights the shortcomings of low-dimensional models.

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Demand curves for stocks do not slope down: Evidence using an exogenous supply shock

Cited by 9 publications

References 28 publications

Economic Consequences of Section Transfers in Japan: Change in Investor Base

Economic Consequences of Section Transfers in Japan: Change in Investor Base

Does the S&P index effect differ between large and small company stocks?

Characteristics-driven returns in equilibrium

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