Download This PaperInvestors’ Interacting Demand and Supply Curves for Common Stocks
Review of Finance, Forthcoming
University of Alberta School of Business Research Paper No. 2015-3,507
47 Pages Posted: 1 Jun 2016
Date Written: July 1, 2015
Abstract
Complete limit order data from Korea show individual stocks’ demand and supply elasticities correlating negatively in short windows. That is, whenever a stock’s demand is unusually elastic, its supply is unusually inelastic, and vice versa. However, in long windows, individual stocks’ demand and supply elasticities correlate positively. Notably, both fall about 40% with the 1997 Asian Financial Crisis, and remain depressed long after the market and macroeconomic variables recover. A parsimonious model explains both findings with investor information heterogeneity and risk-aversion parameters, fixed in the short run, being permanently shifted by the crisis.
Keywords: Demand and supply curves for individual stocks, heterogeneous private valuations, financial crisis
JEL Classification: G01, G12, G14
Suggested Citation: Suggested Citation
Jason Lee
University of Alberta ( email )
Edmonton, Alberta T6G 2R6
Canada
780-492-4839 (Phone)
780-492-3325 (Fax)
Randall K. Morck (Contact Author)
University of Alberta - Department of Finance and Statistical Analysis ( email )
2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)
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