Demand Curves for European Stocks Slope Down Too

Review of Finance, Vol. 7, No. 3, pp. 437-457, 2003

Posted: 3 Apr 2008

See all articles by Robert Neumann

Robert Neumann

Danske Bank - Danske Markets

Torben Voetmann

The Brattle Group; University of San Francisco


The 2000 implementation of float-capitalization index weights in the Dow Jones STOXXSM indices changed the demand for large European stocks. In this paper, we test for imperfect-substitution and price-pressure effects due to the change in the demand for stocks. Our results show that we cannot reject complete reversal after eight weeks of abnormal trading volume for companies with both decreased or increased index weights. This result is consistent with the existence of downward sloping demand curves for stocks. Contrary to the fundamental assumption of perfectly elastic demand curves in asset pricing theories, our findings suggest that a price pressure effect is not a plausible explanation.

Keywords: Downward sloping demand curves, Float capitalization, Imperfect substitution, Index weights, Liquidity effects, Price pressure

JEL Classification: G11, G14

Suggested Citation

Neumann, Robert and Voetmann, Torben, Demand Curves for European Stocks Slope Down Too. Review of Finance, Vol. 7, No. 3, pp. 437-457, 2003. Available at SSRN:

Robert Neumann (Contact Author)

Danske Bank - Danske Markets ( email )

Holmens Kanal 2-12
DK-1092 Copenhagen K

Torben Voetmann

The Brattle Group ( email )

201 Mission Street
Suite 2800
San Francisco, CA 94105
United States
415-217-1000 (Phone)


University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

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