'Stocks Demand Curves and TARP Returns'
University of Louisiana at Lafayette - College of Business Administration
December 27, 2010
Journal of Financial Economic Policy, Vol. 3, No. 3, pp. 229-242, 2011
This study uses a unique natural experiment to contribute to the long-running debate as to whether the demand curves for stocks slope downward. The U.S. Treasury sold 5.27 billion shares of Citigroup’s common stock during trading hours in April 26, 2010, to December 6, 2010. Using a geometric Brownian motion model of the stock price, there is some evidence that the demand curve for Citigroup’s stock has a negative slope. 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 indicates that potential “dribble-out” privatizations of AIG, General Motors, Chrysler Motors, and Ally Financial may depress those firms’ stock prices temporarily, eating into taxpayers’ returns from those bailout investments.
Number of Pages in PDF File: 26
Keywords: Bailout, Banks, Bank of America, Block Trades, Brownian Motion, Chrysler, Citigroup, Demand Curves, General Motors, GMAC, Privatization, Troubled Asset Relief Program, TARP, Secondary Offerings, SEOs, U.S. Treasury
JEL Classification: G01, G13, G21, G28, G32
Date posted: July 15, 2010 ; Last revised: March 29, 2012