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Demand Curves for Stocks Do Slope Down: New Evidence From An Index Weights Adjustment

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Author Info
Aditya Kaul
Vikas Mehrotra
Randall Morck

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Abstract

Weights in the Toronto Stock Exchange 300 index are determined by the market values of the included stocks' public floats. In November 1996, the exchange implemented a previously announced revision of its definition of the public float. This revision, which increased the floats and the index weights of 31 stocks, conveyed no information and had no effect on the legal duties of shareholders. Affected stocks experienced statistically significant excess returns of 2.3 percent during the event week, and no price reversal occurred as trading volume returned to normal levels. These findings support downward sloping demand curves for stocks.

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Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1884.

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Date of creation: 1999
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Handle: RePEc:fth:harver:1884

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Web page: http://www.economics.harvard.edu/journals/hier
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  1. Lynch, Anthony W & Mendenhall, Richard R, 1997. "New Evidence on Stock Price Effects Associated with Changes in the S&P 500 Index," Journal of Business, University of Chicago Press, vol. 70(3), pages 351-83, July. [Downloadable!] (restricted)
  2. Scholes, Myron S, 1972. "The Market for Securities: Substitution versus Price Pressure and the Effects of Information on Share Prices," Journal of Business, University of Chicago Press, vol. 45(2), pages 179-211, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Randall Morck & Fan Yang, 2001. "The Mysterious Growing Value of S&P 500 Membership," NBER Working Papers 8654, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Anna Obizhaeva & Jiang Wang, 2005. "Optimal Trading Strategy and Supply/Demand Dynamics," NBER Working Papers 11444, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Tomas Dvorak, . "Do Domestic Investors Have an Information Advantage? Evidence from Indonesia," Center for Development Economics 168, Department of Economics, Williams College. [Downloadable!]
  4. Claessens, Stijn & Yafeh, Yishay, 2008. "Additions to Market Indices and the Comovement of Stock Returns around the World," CEPR Discussion Papers 7052, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Eli Ofek & Matthew Richardson, 2000. "The IPO Lock-Up Period: Implications for Market Efficiency And Downward Sloping Demand Curves," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-054, New York University, Leonard N. Stern School of Business-. [Downloadable!]
  6. Jung-Wook Kim & Jason Lee & Randall Morck, 2009. "Characteristics of Observed Limit Order Demand and Supply Schedules for Individual Stocks," NBER Working Papers 14733, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Eric Nowak & Alexandra Gropp, 2000. "Ist der Ablauf der Lock-up-Frist bei Neuemissionen ein kursrelevantes Ereignis," Working Paper Series: Finance and Accounting 63, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
  8. Bryan Mase, 2006. "Investor awareness and the long-term impact of FTSE 100 index redefinitions," Applied Financial Economics, Taylor and Francis Journals, vol. 16(15), pages 1113-1118, October. [Downloadable!] (restricted)
  9. Martin D. D. Evans & Richard K. Lyons, 2003. "Are Different-Currency Assets Imperfect Substitutes?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  10. Bryan Mase, 2002. "The Impact of Changes in the FTSE 100 Index," Economics and Finance Discussion Papers 02-25, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
  11. J. Carlos Gómez Sala & Jorge Yzaguirre, 2003. "Presión sobre los precios en las revisiones del índice IBEX35," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 491-531, September. [Downloadable!]
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  12. Wang, Jun & Zhang, Ge, 2003. "Heterogeneous beliefs and employee stock options," Working Papers 2003-14, University of New Orleans, Department of Economics and Finance. [Downloadable!]
  13. Massa, Massimo & Peyer, Urs & Tong, Zhenxu, 2005. "Limits of Arbitrage and Corporate Financial Policy," CEPR Discussion Papers 4829, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Anthony Richards, 2004. "Big Fish in Small Ponds: The Trading Behaviour and Price Impact of Foreign Investors in Asian Emerging Equity Markets," RBA Research Discussion Papers rdp2004-05, Reserve Bank of Australia. [Downloadable!]
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  15. Bryan Mase, 2002. "The Impact of Changes in the FTSE 100 Index," Public Policy Discussion Papers 02-25, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
  16. Carol L. Osler, 2006. "Macro lessons from microstructure," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(1), pages 55-80. [Downloadable!]
  17. Nicholas Barberis & Andrei Shleifer & Jeffrey Wurgler, 2002. "Comovement," Harvard Institute of Economic Research Working Papers 1953, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
    • Nicholas Barberis & Andrei Shleifer & Jeffrey Wurgler, 2002. "Comovement," NBER Working Papers 8895, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    • Barberis, Nicholas & Shleifer, Andrei & Wurgler, Jeffrey, 2005. "Comovement," Journal of Financial Economics, Elsevier, vol. 75(2), pages 283-317, February. [Downloadable!] (restricted)
  18. Cheolbeom Park, 2002. "Speculative Behavior and Heterogeneous Expectations: Theory and Evidence," Departmental Working Papers wp0205, National University of Singapore, Department of Economics. [Downloadable!]
  19. Nicholas Barberis & Andrei Shleifer, 2000. "Style Investing," NBER Working Papers 8039, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. C. L. Osler, 2002. "Stop-loss orders and price cascades in currency markets," Staff Reports 150, Federal Reserve Bank of New York. [Downloadable!]
  21. Hsiu-Lang Chen, 2006. "On Russell index reconstitution," Review of Quantitative Finance and Accounting, Springer, vol. 26(4), pages 409-430, June. [Downloadable!] (restricted)
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