The role of arbitrage risk on the elasticity of demand: New evidence from 100% secondary equity offerings

We examine the elasticity of demand curves using a recent sample of 100% secondary equity offerings (i.e., a large block of shares held by current shareholders; the proceeds of the sale go to the selling shareholders, not the issuing company) and employ measures of arbitrage risk that allow us to control for variation in arbitrage risk. We find that demand curves are inelastic for firms with high levels of arbitrage risk and elastic for all others. We also document that during the second half of our sample period demand curves are elastic for all stocks regardless of the arbitrage risk.