Do demand curves for stocks slope down? - new evidence from a unique event in India
by Srikanth Parthasarathy
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 11, No. 4, 2021

Abstract: The objective of this study is to examine the price and non-price effects of the constituent stocks following the change of the computation methodology of S&P CNX Nifty index from full market capitalisation weighted methodology to the free float market capitalisation weighted methodology in June 2009 in order to resolve whether the demand curves for stocks slope down. This study has followed methodology similar to that of Kaul et al. (2000). The event methodology is used along with cross sectional regressions associating abnormal returns and demand shift. Overall, the empirical evidence in this study supports the downward sloping demand curves for the stocks. The results have implications for one of the basic assumptions in the finance theory, regulators, investors, index providers and managers. To the best of the author's knowledge, this is the first study to examine the slope of demand curves, in such a unique setting without information content.

Online publication date:: Thu, 23-Sep-2021

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