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

Posted: 9 Feb 2016 Last revised: 11 May 2020

See all articles by Ankit Jain

Ankit Jain

University of Queensland

Prasanna L. Tantri

Indian School of Business

Ramabhadran S. Thirumalai

Indian School of Business

Date Written: July 21, 2014

Abstract

We analyze the price impact of an exogenous share sale of inside blockholders who were forced to sell a part of their shareholdings following 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 within around 16 days of the event. Our results are consistent with the view that long-term demand curves for stocks are flat; this view is echoed in classical finance theories. The short-term price reaction to a sale is probably due to temporary price pressure.

Keywords: Supply shock, Slow moving capital, Demand curve, Price pressure

JEL Classification: G1, G12, G14

Suggested Citation

Jain, Ankit and Tantri, Prasanna L. and Thirumalai, Ramabhadran S., Demand Curves For Stocks Do Not Slope Down: Evidence Using an Exogenous Supply Shock (July 21, 2014). Journal of Banking and Finance, Vol. 104, 2019, Asian Finance Association (AsianFA) 2016 Conference, Indian School of Business WP 2729104, Available at SSRN: https://ssrn.com/abstract=2729104 or http://dx.doi.org/10.2139/ssrn.2729104

Ankit Jain

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

Ramabhadran S. Thirumalai (Contact Author)

Indian School of Business ( email )

Gachibowli
Hyderabad, Andhra Pradesh 500 032
India
+91 (40) 2318 7151 (Phone)
+91 (40) 2300 7017 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
943
PlumX Metrics