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

Ankit Jain, Prasanna Tantri and Ramabhadran S. Thirumalai

Journal of Banking & Finance, 2019, vol. 104, issue C, 19-30

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.

Keywords: Supply shock; Slow moving capital; Demand curve; Price pressure (search for similar items in EconPapers)
JEL-codes: G1 G12 G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:104:y:2019:i:c:p:19-30

DOI: 10.1016/j.jbankfin.2019.03.012

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