In their paper, the researchers find, both theoretically and empirically, that the aggregate stock market is surprisingly price-inelastic. They name this finding the "Inelastic Markets Hypothesis". According to this hypothesis, flows either in or out of the stock market have a significant impact on both asset prices and risk premia. The researchers’ empirical analysis relies on a novel empirical methodology and on data largely unexplored in this context. An important takeaway from their research is that the demand elasticity of the stock market is a key parameter of interest in terms of asset pricing and macro-finance alike. If the "Inelastic Markets Hypothesis" proves to be more than a hypothesis, then many common views in finance will be either qualified or simply invalidated.

The winners of the SFI Outstanding Paper Award 2020 will be invited to present their research during the SFI Research Days in June 2020. The research paper can be accessed at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3686935.