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

Author

Listed:
  • Jain, Ankit
  • Tantri, Prasanna
  • Thirumalai, Ramabhadran S.

Abstract

We analyze the price impact of an exogenous share sale of inside blockholders who were forced to sell a part of their shareholdings following a regulatory change in India. The affected firms experience a negative excess return of 4.3% during the issue week. Crucially, the price impact reverses within around 16 days of the event. Our results are consistent with the view that long-term demand curves for stocks are flat; this view is echoed in classical finance theories. The short-term price reaction to a sale is probably due to temporary price pressure.

Suggested Citation

  • Jain, Ankit & Tantri, Prasanna & Thirumalai, Ramabhadran S., 2019. "Demand curves for stocks do not slope down: Evidence using an exogenous supply shock," Journal of Banking & Finance, Elsevier, vol. 104(C), pages 19-30.
    • Handle: RePEc:eee:jbfina:v:104:y:2019:i:c:p:19-30
    DOI: 10.1016/j.jbankfin.2019.03.012
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    Cited by:

    1. Abo Rodrigue Majoie, 2021. "Economic Consequences of Section Transfers in Japan: Change in Investor Base," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 10(2), pages 1-1.
    2. Popli, Manish & Raithatha, Mehul & Goyal, Lakshmi, 2022. "Avoiding the risk of de-legitimation: Impact of internationalization on earnings management of emerging market firms," Finance Research Letters, Elsevier, vol. 48(C).
    3. Guillaume Coqueret, 2022. "Characteristics-driven returns in equilibrium," Papers 2203.07865, arXiv.org.
    4. Kin Ming Wong & Kwok Ping Tsang, 2023. "Inclusions and Exclusions of Stocks in Cross-Border Investments: The Case of Stock Connect," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 701-727, December.

    More about this item

    Keywords

    Supply shock; Slow moving capital; Demand curve; Price pressure;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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