Associate Professor of Accounting
University of Alberta
Edmonton AB Canada T6G 2R6
NBER Working Papers and Publications
|February 2009||Characteristics of Observed Limit Order Demand and Supply Schedules for Individual Stocks|
with Jung-Wook Kim, Randall Morck: w14733
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 thro...