Price Multipliers are Larger at More Aggregate Levels

Abstract

We decompose demand imbalances in the U.S. stock market into components at different levels of aggregation and estimate their respective price impacts using a unified approach. The results reveal that price multipliers form a continuum that is higher at higher lev- els of aggregation. Our findings are inconsistent with information-based explanations and qualitatively consistent with mechanisms based on risk-averse investor demand. This paper proposes a new demand measure for asset pricing studies. As price multipliers are determined by investor demand elasticities, our results highlight the importance of capturing cross-asset substitutions in modeling investor behavior. 

Keywords: Price multiplier, demand-based asset pricing, substitution, demand-elasticity

JEL Classification: G11, G12