Critical Finance Review > Vol 13 > Issue 1-2

Demand Curves for Stocks Slope Down in the Long Run: Evidence from the Chinese Split-Share Structure Reform

Clark Liu, PBC School of Finance, Tsinghua University, China, liuyue@pbcsf.tsinghua.edu.cn , Baolian Wang, Warrington College of Business, University of Florida, USA, baolian.wang@warrington.ufl.edu
 
Suggested Citation
Clark Liu and Baolian Wang (2024), "Demand Curves for Stocks Slope Down in the Long Run: Evidence from the Chinese Split-Share Structure Reform", Critical Finance Review: Vol. 13: No. 1-2, pp 225-264. http://dx.doi.org/10.1561/104.00000140

Publication Date: 14 Feb 2024
© 2024 Clark Liu and Baolian Wang
 
Subjects
 
Keywords
G02G12G15
Long-term demand curvesDivergence of opinionSplit-share structure reformA/B shareLack of substitutes
 

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In this article:
1. Introduction 
2. Hypotheses Development 
3. Institutional Background 
4. Data and Summary Statistics 
5. Main Results 
6. Why are Demand Curves Downward Sloping? 
7. Are Downward-Sloping Demand Curves Priced Ex-Ante? 
8. Conclusions 
References 

Abstract

This paper uses China’s Split-Share Structure Reform to study the slope of long-term demand curves. The reform increased local A-share float but did not affect foreign B-share float. Across firms, larger increases in A-share float lead to larger decreases in A-share price relative to B-share price, even up to around 10 years after the reform, suggesting that demand curves slope down in the long run. Larger increases in float also lead to larger decreases in turnover and volatility, and demand curves are steeper when the divergence of opinion is greater, consistent with the theory modeling investors with heterogeneous beliefs.

DOI:10.1561/104.00000140

Online Appendix | 104.00000140_app.pdf

This is the article’s accompanying appendix.

DOI: 10.1561/104.00000140_app