TY  - JOUR
AU  - Kim,Jung-Wook
AU  - Lee,Jason
AU  - Morck,Randall
TI  - Characteristics of Observed Limit Order Demand and Supply Schedules for Individual Stocks
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14733
PY  - 2009
Y2  - February 2009
UR  - http://www.nber.org/papers/w14733
L1  - http://www.nber.org/papers/w14733.pdf
N1  - Author contact info:
Jung-Wook Kim
Associate Professor of Finance
College of Business Administration
Seoul National University
Seoul, Korea
151-742
E-Mail: jwkim87@snu.ac.kr

Jason Lee
Associate Professor of Accounting
University of Alberta
Edmonton AB Canada T6G 2R6
E-Mail: jason.lee@ualberta.ca

Randall Morck
Faculty of Business
University of Alberta
Edmonton, AB  T6G 2R6
CANADA
Tel: 780/492-5683
Fax: 780/492-3325
E-Mail: randall.morck@ualberta.ca
AB  - Using complete order books from the Korea Stock Exchange for a four-year period including the 1997 Asian financial crisis, we observe (not estimate) limit order demand and supply curves for individual stocks. Both curves have demonstrably finite elasticities. These fall markedly, by about 40%, with the crisis and remain depressed long after other economic and financial variables revert to pre-crisis norms. Superimposed upon this common long-term modulation, individual stocks' supply and demand elasticities correlate negatively at high frequencies.  That is, when a stock exhibits an unusually elastic demand curve, it tends simultaneously to exhibit an unusually inelastic supply curve, and vice versa. These findings have potential implications for modeling how information flows into and through stock markets, how limit order providers react or interact to information flows, how new information is capitalized into stock prices, and how financial crises alter these processes. We advance speculative hypotheses, and invite further theoretical and empirical work to explain these findings and their implications.
ER  -