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'Stocks Demand Curves and TARP Returns'

Journal of Financial Economic Policy, Vol. 3, No. 3, pp. 229-242, 2011

26 Pages Posted: 15 Jul 2010 Last revised: 29 Mar 2012

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Date Written: December 27, 2010

Abstract

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.

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

Suggested Citation

Wilson, Linus, 'Stocks Demand Curves and TARP Returns' (December 27, 2010). Journal of Financial Economic Policy, Vol. 3, No. 3, pp. 229-242, 2011. Available at SSRN: https://ssrn.com/abstract=1639525 or http://dx.doi.org/10.2139/ssrn.1639525

Linus Wilson (Contact Author)

University of Louisiana at Lafayette - College of Business Administration ( email )

Department of Economics & Finance
214 Hebrard Blvd., Room 326
Lafayette, LA 70504-0200
United States
(337) 482-6209 (Phone)
(337) 482-6675 (Fax)

HOME PAGE: http://www.linuswilson.com

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