Inelastic Markets and Fund Flows

Inelastic Markets and Fund Flows

• Author
• Nelson Camanho
• Co-authors
• Alan De Genaro , Pedro Saffi , André Silva
• Abstract

• Standard asset pricing models imply that stock markets should be highly elastic to changes in flows, implying a low price impact. Using fund monthly data on portfolio holdings in Brazil from 2005 to 2022, we estimate the elasticities of supply and demand from fund flows to stock market index prices. Consistent with inelastic markets, we find a supply elasticity of 1.5 and a demand elasticity of 3.4. These imply that a 1\% demand shock to net equity flows leads to a 0.5\% aggregate stock price increase and a 0.8\% flow increase. These findings are consistent with inelastic supply and demand curves.ard asset pricing models imply that stock markets should be highly ela

• Keywords
• Asset pricing, market elasticities, institutional investors, sources of volatility, portfolio choice, GIV
• Subject Area
• Asset pricing, investments, and Derivatives

Back Download