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The Price Elasticity of Demand for Common Stock

Claudio Loderer, John W. Cooney and Leonard D. Van Drunen
The Journal of Finance
Vol. 46, No. 2 (Jun., 1991), pp. 621-651
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328839
Stable URL: http://www.jstor.org/stable/2328839
Page Count: 31
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Abstract

We study the price elasticity of demand for the common stock of an individual corporation. Despite the prevelance of assumptions that demand is perfectly elastic, there is little if any direct evidence in the literature to either support or reject that contention. Consistent with the notion of finite price elasticities, we find that the announcement of primary stock offerings by regulated firms depresses their stock prices and little if any evidence that this decline is the result of adverse information about future cash flows. Attempts to relate offer announcement effects directly to possible determinants of price elasticities, however, are inconclusive.

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