Why do portfolio choice models predict inelastic demand?☆

• 成果类型: Article
• 署名作者: Davis, Carter; Kargar, Mahyar; Li, Jiacui
• 署名单位: University System of Ohio; Ohio State University; University of Illinois System; University of Illinois Urbana-Champaign; Utah System of Higher Education; University of Utah
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2025.104096
• 发表日期: 2025
• 关键词: Demand elasticity; Price pass-through; Spanning; Weak factors; Demand-based asset pricing

摘要

Classical asset pricing models predict that optimizing investors exhibit extremely high demand elasticities, while empirical estimates are significantly lower-by three orders of magnitude. To reconcile this disparity, we introduce a novel decomposition of investor demand elasticity into two key components: price pass-through, which captures how price movements forecast returns, and unspanned returns, reflecting a stock's lack of perfect substitutes. In a factor model framework, we show that unspanned returns become significant when models include weak factors. Classical models overestimate demand elasticity by assuming both very low unspanned returns and high price pass-throughs, assumptions that are inconsistent with empirical evidence.