Marketwide Price Pressure

Abstract

This paper provides evidence of the price-pressure hypothesis in the aggregate, daily stock-market return. Events that convey no new information about fundamentals, but entail large transfers of cash, predict the daily stock-market return. This predictability relates to the growth of passive investment strategies. Passive investment strategies are the conduit dispersing price pressure across securities. Three examinations – of dividend payouts, reversals after ETF fund flows, and merger effective dates – affirm the price-pressure hypothesis and show the daily stock-market return to be predictable.

JEL Classification: G12, G14