Topic: Do Demand Curves for Stocks Slope Down in the Long Run?
Speaker: Clark (Yue) Liu, Assistant Professor of Finance, PBCSF
Date: April 27th (Wed.)
Time: 1:30pm-2:30pm
Location: Building 4, Room 101
Language: English
Abstract:
The Split-Share Structure Reform in China mandated the conversion of nontradable local A-shares into tradable status and increased A-share float. This paper examines the long-term pricing effects of the increased float. Given that foreign B-shares were not directly affected by this reform, we use B-share price to control for possible changes in firm fundamentals. We find that, across firms, larger increase in float leads to larger decrease in A-share price relative to B-share price, even up to around ten years after the reform, suggesting that demand curves slope down in the long run. Consistent with the theory based on heterogeneous beliefs, we find that a larger increase in float leads to lower turnover and lower volatility, and that demand curves are more downward-sloped when divergence of opinion is larger. We also find evidence that arbitrage risk prevents arbitrageurs from flattening the demand curves.
About the speaker:
Clark (Yue) Liu is currently an assistant professor at PBC School of Finance, Tsinghua University. He received his PhD degree in finance from Hong Kong University of Science and Technology in 2013 and held his BA in economics and finance from the University of Hong Kong. Clark’s research focuses on theoretical and empirical asset pricing, including international financial markets, investor trading behavior and financial market frictions. He has published in Economics Letters. His research on dual-listed shares has been awarded the Hong Kong Asian Capital Markets Research Prize (2012) by the Chartered Financial Analyst Institute.
