Demand Curves For Stocks Do Not Slope Downwards: Evidence Using an Exogenous Supply Shock

Jain, A and Tantri, P L and Thirumalai, R S (2019) Demand Curves For Stocks Do Not Slope Downwards: Evidence Using an Exogenous Supply Shock. Journal of Banking & Finance, 104. pp. 19-30.

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Abstract

We analyze the price impact of an exogenous share sale by inside blockholders, who were forced to sell a part of their shareholdings due to 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 in about 16 days after the event. Our results are consistent with the view that the long term demand curves for stocks are flat: a view echoed by classical finance theories. The short term price reaction to a sale is likely to be a result of temporary price pressure.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Tantri, P LUNSPECIFIED
Thirumalai, R Shttp://orcid.org/0000-0001-9251-6829
Item Type: Article
Uncontrolled Keywords: Supply shock, Slow moving capital, Demand curve, Price pressure
Subjects: Finance
Finance > Financial Institutions
Depositing User: Veeramani R
Date Deposited: 19 Mar 2019 13:11
Last Modified: 01 Jul 2019 17:04
URI: http://eprints.exchange.isb.edu/id/eprint/692
Publisher URL: https://doi.org/10.1016/j.jbankfin.2019.03.012
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/0378-4266/
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