Working Paper: NBER ID: w10410
Authors: Jungwook Kim; Jason Lee; Randall Morck
Abstract: Using 550 million limit orders submitted in the Korea Stock Exchange, we estimate demand and supply elasticities of heterogeneous investor types and their changes around the Asian financial crisis. We find that domestic individuals have substantially more inelastic demand and supply curves than domestic institutions and foreign investors. The crisis permanently reduced price elasticities of domestic individuals by 50% but had no effect on those of foreign investors. Institutional changes restricting margin purchases, implemented after the crisis, seem particularly important in explaining the dramatic drop. Information heterogeneity, availability of close substitutes and arbitrage risk also explain time-series variations in elasticities.
Keywords: No keywords provided
JEL Codes: G0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| domestic individual investors (G23) | inelastic demand and supply curves (Q31) |
| Asian financial crisis (F65) | reduction in price elasticities of domestic individuals (D12) |
| restrictions on margin purchases (G32) | inelastic demand of domestic individuals (D12) |
| information heterogeneity (D83) | variations in elasticity over time (C41) |
| availability of close substitutes (D43) | variations in elasticity over time (C41) |
| arbitrage risk (F31) | variations in elasticity over time (C41) |
| Asian financial crisis (F65) | no meaningful effect on elasticities of foreign investors (F21) |
| trading volume (G15) | changes in demand and supply elasticities (D12) |
| margin buying ratios (G32) | changes in demand and supply elasticities (D12) |