Journal of Financial Economics Vol. 184 2026
Short versus long-run demand elasticities in asset pricing
Abstract
This paper quantifies how investors’ portfolio demand responds to price changes at long horizons versus short horizons. Using investor trades – changes in portfolios – at different horizons, I first present reduced-form evidence that elasticities increase significantly over time. I then propose a dynamic demand system via a parsimonious partial-adjustment model that recovers the full term structure of elasticities while mitigating long-horizon identification challenges. The estimates imply that price impacts are three times larger at quarterly horizons than in the long-run equilibrium. The model produces a novel, stock-level measure of long-term reversal that avoids the noise of long-horizon return regressions.
- DOI
- 10.1016/j.jfineco.2026.104337
- Volume
- 184
- Pages
- 104337
- Language
- en
- Sources
- crossref openalex semanticscholar