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The Effect of Demand on Stock Prices: Evidence from Index Fund Rebalancing

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  • Ernest N. Biktimirov

Abstract

I examine the effect of demand on stock prices by analyzing the conversion of the TIPs 35 and TIPs 100 exchange‐traded funds into the i60 Fund. This conversion occurred at the Toronto Stock Exchange on March 6, 2000. Forty stocks of the TIPs 100 Fund that were not members of the new units of the i60 Fund were sold to complete this conversion. I find that a decrease in demand produced a permanent stock price decline, which was accompanied by significant abnormal trading volume. The results provide support for the downward‐sloping demand curve hypothesis.

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  • Ernest N. Biktimirov, 2004. "The Effect of Demand on Stock Prices: Evidence from Index Fund Rebalancing," The Financial Review, Eastern Finance Association, vol. 39(3), pages 455-472, August.
    • Handle: RePEc:bla:finrev:v:39:y:2004:i:3:p:455-472
    DOI: 10.1111/j.0732-8516.2004.00084.x
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    References listed on IDEAS

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    1. Jerry Coakley & George Dotsis & Apostolos Kourtis & Dimitris Psychoyios, 2024. "The S&P 500 index inclusion effect: Evidence from the options market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 1157-1171, January.
    2. Ernest Biktimirov & Boya Li, 2014. "Asymmetric stock price and liquidity responses to changes in the FTSE SmallCap index," Review of Quantitative Finance and Accounting, Springer, vol. 42(1), pages 95-122, January.
    3. Linus Wilson, 2011. "Stock demand curves and TARP returns," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 3(3), pages 229-242, August.
    4. Chen, Haiwei & Ngo, Thanh, 2017. "Leverage-based index revisions: The case of Dow Jones Islamic Market World Index," Global Finance Journal, Elsevier, vol. 32(C), pages 16-34.
    5. Luke Bouffler & Amy Kwan & Lantian Liang & Richard Philip, 2023. "Do uninformed traders move prices? Evidence from the Bank of Japan's ETF purchasing program," The Financial Review, Eastern Finance Association, vol. 58(1), pages 5-18, February.
    6. Laurent Deville, 2008. "Exchange Traded Funds: History, Trading and Research," Post-Print halshs-00162223, HAL.

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