Topic: Asset Pricing with Supply Shocks

Speaker: Mao Ye, Professor of Finance, Johnson Graduate School of Management, Cornell University

Time: 10:00am-11:30am, Wednesday, December 31

Location: 4-101

Abstract:

Although exogenous supply shocks are central to identifying demand curves in other areas of economics, the asset pricing literature has relied on demand-side instru[1]ments. We fill this gap by exploiting an exogenous and uninformed supply shock: the 2016 Tick Size Pilot. While treatment and control firms announced similar levels of repurchases, treatment firms repurchased 20% fewer shares due to unforeseen conflicts between the pilot and repurchase regulations. The random assignment of treatment allows us to control for price spillover effects under a difference-in-differences frame[1]work. We estimate a relative price multiplier of 2.01 and show that households and investment advisors (e.g., hedge funds) absorb most of supply shocks.