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Investors’ Interacting Demand and Supply Curves for Common Stocks

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  • Martin Dierker
  • Jung-Wook Kim
  • Jason Lee
  • Randall Morck

Abstract

Complete limit order data from Korea show individual stocks’ demand and supply elasticities correlating negatively in short windows. That is, whenever a stock’s demand is unusually elastic, its supply is unusually inelastic, and vice versa. However, in long windows, individual stocks’ demand and supply elasticities correlate positively. Notably, both fall about 40% with the 1997 Asian Financial Crisis, and remain depressed long after the market and macroeconomic variables recover. A parsimonious model explains both findings with investor information heterogeneity and risk-aversion parameters, fixed in the short-run, being permanently shifted by the crisis.

Suggested Citation

  • Martin Dierker & Jung-Wook Kim & Jason Lee & Randall Morck, 2016. "Investors’ Interacting Demand and Supply Curves for Common Stocks," Review of Finance, European Finance Association, vol. 20(4), pages 1517-1547.
  • Handle: RePEc:oup:revfin:v:20:y:2016:i:4:p:1517-1547.
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