DO COMMON STOCKS HAVE PERFECT SUBSTITUTES? PRODUCT MARKET COMPETITION AND THE ELASTICITY OF DEMAND FOR STOCKS

Though common stocks are one of the most important assets in an economy, little is known about their demand curves. I estimate demand curves for 144 NYSE stocks using a unique data set of all orders, including off-equilibrium orders, during three months in 1990 and 1991. Connecting asset pricing wit...

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Bibliographic Details
Published in:The review of economics and statistics 2014-10, Vol.96 (4), p.756-766
Main Author: Ahern, Kenneth R.
Format: Article
Language:English
Subjects:
Asset pricing
Common stock
Demand curves
Economic theory
Elasticity
Elasticity of demand
Estimation
Industrial organization
Industrial products
Investors
Price elasticity
Price elasticity of demand
Product markets
Stock exchanges
Stock prices
Stocks
Studies
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Summary:Though common stocks are one of the most important assets in an economy, little is known about their demand curves. I estimate demand curves for 144 NYSE stocks using a unique data set of all orders, including off-equilibrium orders, during three months in 1990 and 1991. Connecting asset pricing with industrial organization, I find that stocks of firms in less competitive industries are more elastic because they have closer substitutes than stocks in more competitive industries. Tests that exploit the 1991 Gulf War shock and S&P 500 Index additions confirm these results.
ISSN:0034-6535
1530-9142
DOI:10.1162/REST_a_00414