Stock demand curves and TARP returns

Linus Wilson

Journal of Financial Economic Policy, 2011, vol. 3, issue 3, 229-242

Abstract: Purpose - The purpose of this paper is to determine if the US Treasury's at‐the‐market sales of 5.27 billion Citigroup shares in 2010 drove down the banks' share price. It attempts to use the evidence of Citigroup's stock returns to accept or reject competing hypotheses of larger stock sales. Design/methodology/approach - The paper uses a geometric Brownian motion model to test if there were abnormal returns at various points in the US Treasury's highly publicized stock sale that lasted from 26 April to 6 December 2010. Findings - There was a weakly significant drop in the stock price at the announcement of the sale and a weakly significant rise in the stock price just after it ended. This is evidence that the demand curve for the stock had a negative slope. Practical implications - The evidence from this study will influence policy makers and investors in the upcoming privatizations of large bailed‐out firms such as American International Group, Ally Financial, Chrysler, and General Motors. The evidence indicates that slow at‐the‐market sales may temporarily depress stock prices more than quicker, underwritten secondary offerings. Patient investors may experience modest abnormal returns from providing liquidity to the US Treasury as it privatizes its holdings. Originality/value - This is the only paper to study the stock price impacts of the US Treasury's liquidation of its 27 percent stake in Citigroup in 2010. Because the stock sales were delegated to a third party and highly publicized, unlike most other large stock sales, the Citigroup privatization is an unprecedented opportunity to test if the demand curve for common stocks is perfectly elastic.

Keywords: United States of America; Fiscal policy; Bailout; Geometric Brownian motion; Citigroup; Demand curves; Secondary offerings; TARP (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:v:3:y:2011:i:3:p:229-242

DOI: 10.1108/17576381111152218

Access Statistics for this article

Journal of Financial Economic Policy is currently edited by Prof Franklin Mixon

More articles in Journal of Financial Economic Policy from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().