Demand Curves For Stocks Do Not Slope Down: Evidence Using an Exogenous Supply Shock
Posted: 9 Feb 2016 Last revised: 11 May 2020
Date Written: July 21, 2014
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: Suggested Citation