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Estimating the price elasticity of demand in the London Stock Market

Levin, E.J. and Wright, R.E. (2001) Estimating the price elasticity of demand in the London Stock Market. European Journal of Finance, 7 (1). pp. 1-16. ISSN 1351-847X

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Abstract

The hypothesis that demand curves for individual stocks slope downwards is typically investigated by empirical analysis of stock price movements following events that cause shifts in demand or supply. However, it is difficult to attribute observed price move ments between downward sloping demand curves and information conveyed by the event. In this paper an econometric approach, based on market-maker response to unexpected changes in inventory, is used to separate out the slope of the demand curve from information effects and estimate the slopes of the demand curves for twenty stocks included in the Financial Times-Stock Exchange 100 Share Index (FTSE100) . The analysis suggests that downward sloping demand curves would decrease the price by about 7.5% for a 1% increase in the number of outstanding shares.

Item type: Article
ID code: 6933
Keywords: price elasticity, price, stock market, finance, stocks, shares, econometrics, economics, Finance, Economic Theory, Public Finance, Political institutions (Europe), Economics, Econometrics and Finance (miscellaneous)
Subjects: Social Sciences > Finance
Social Sciences > Economic Theory
Social Sciences > Public Finance
Political Science > Political institutions (Europe)
Department: Strathclyde Business School > Economics
Related URLs:
    Depositing user: Strathprints Administrator
    Date Deposited: 02 Oct 2008
    Last modified: 04 Sep 2014 14:25
    URI: http://strathprints.strath.ac.uk/id/eprint/6933

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