Do Demand Curves for Stocks Slope Down? Evidence from an Exogenous Demand Shock

19 Pages Posted: 5 May 2020

See all articles by Kin Ming Wong

Kin Ming Wong

Hong Kong Baptist University (HKBU)

Kwok Ping Tsang

Virginia Polytechnic Institute & State University

Date Written: April 13, 2020

Abstract

The Mutual Market Access scheme in 2014 triggered an influx of capital from mainland China to Hong Kong. We argue that it is exogenous demand shock for the Hong Kong stocks market and thus provides a unique opportunity to test whether the demand curves for stocks are downward sloping. We find a positive relationship between abnormal returns and demand shocks, implying downward-sloping demand curves for stocks in short-run. Over time the demand flattens, and the positive relationship disappears in about 40 days. We only find weak evidence that limited attention and arbitrage risk are related to the elasticity.

Keywords: Demand curves for stocks, slow moving capital, Mutual Market Access scheme

JEL Classification: F21, G12, G14

Suggested Citation

Wong, Kin Ming and Tsang, Kwok Ping, Do Demand Curves for Stocks Slope Down? Evidence from an Exogenous Demand Shock (April 13, 2020). Available at SSRN: https://ssrn.com/abstract=3573277 or http://dx.doi.org/10.2139/ssrn.3573277

Kin Ming Wong

Hong Kong Baptist University (HKBU) ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong

Kwok Ping Tsang (Contact Author)

Virginia Polytechnic Institute & State University ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

HOME PAGE: http://https://sites.google.com/site/byrontkp/

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