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Stock demand curves and TARP returns

Linus Wilson (Department of Economics and Finance, B.I. Moody III College of Business, University of Louisiana at Lafayette, Lafayette, Louisiana, USA)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 9 August 2011




The purpose of this paper is to determine if the US Treasury's at‐the‐market sales of 5.27 billion Citigroup shares in 2010 drove down the banks' share price. It attempts to use the evidence of Citigroup's stock returns to accept or reject competing hypotheses of larger stock sales.


The paper uses a geometric Brownian motion model to test if there were abnormal returns at various points in the US Treasury's highly publicized stock sale that lasted from 26 April to 6 December 2010.


There was a weakly significant drop in the stock price at the announcement of the sale and a weakly significant rise in the stock price just after it ended. This is evidence that the demand curve for the stock had a negative slope.

Practical implications

The evidence from this study will influence policy makers and investors in the upcoming privatizations of large bailed‐out firms such as American International Group, Ally Financial, Chrysler, and General Motors. The evidence indicates that slow at‐the‐market sales may temporarily depress stock prices more than quicker, underwritten secondary offerings. Patient investors may experience modest abnormal returns from providing liquidity to the US Treasury as it privatizes its holdings.


This is the only paper to study the stock price impacts of the US Treasury's liquidation of its 27 percent stake in Citigroup in 2010. Because the stock sales were delegated to a third party and highly publicized, unlike most other large stock sales, the Citigroup privatization is an unprecedented opportunity to test if the demand curve for common stocks is perfectly elastic.



Wilson, L. (2011), "Stock demand curves and TARP returns", Journal of Financial Economic Policy, Vol. 3 No. 3, pp. 229-242.



Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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