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Demand Curves for European Stocks Slope Down Too

Author

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  • Robert Neumann
  • Torben Voetmann

Abstract

The 2000 implementation of float-capitalization index weights in the Dow Jones STOXXSM indices changed the demand for large European stocks. In this paper, we test for imperfect-substitution and price-pressure effects due to the change in the demand for stocks. Our results show that we cannot reject complete reversal after eight weeks of abnormal trading volume for companies with both decreased or increased index weights. This result is consistent with the existence of downward sloping demand curves for stocks. Contrary to the fundamental assumption of perfectly elastic demand curves in asset pricing theories, our findings suggest that a price pressure effect is not a plausible explanation. JEL classification codes: G11; G14

Suggested Citation

  • Robert Neumann & Torben Voetmann, 2003. "Demand Curves for European Stocks Slope Down Too," Review of Finance, European Finance Association, vol. 7(3), pages 437-457.
    • Handle: RePEc:oup:revfin:v:7:y:2003:i:3:p:437-457.
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    File URL: http://hdl.handle.net/10.1023/B:EUFI.0000022150.48956.84
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    Cited by:

    1. Kin Ming Wong & Kwok Ping Tsang, 2023. "Inclusions and Exclusions of Stocks in Cross-Border Investments: The Case of Stock Connect," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 701-727, December.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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