All Stocks are Not Created Equal : Evidence from the S&P Indexes Float Adjustment

I examine the slope of the demand curve for stocks by analyzing the transition of the Samp;P 500, Samp;P MidCap 400, and Samp;P SmallCap 600 from market capitalization to free float weighting, which occurred in 2005. This unique information-free event allows isolating the effect of the decrease in demand for stocks from other possible competing effects offered in the literature. This decrease in demand produces a stock price decline, which is accompanied by significant abnormal trading volume. My main finding is that the slope of the demand curve is related to a stock's beta. Small beta stocks show a permanent decline in stock value, which is consistent with a downward sloping demand curve. In contrast, large beta stocks exhibit a transitory stock price reaction, which supports a flat long-run demand curve for stocks