Many models in asset pricing base their assumptions on a flat demand curve for stocks, as they are viewed as goods with perfect substitutes. With this, I understand that any sort of stock sale or purchase that provides no additional information should not affect stock prices.

With a flat demand curve however, how can we explain any change in stock price under the assumptions of this theory? How can we graphically represent addition of new information on the original, flat demand curve?

  • 1
    $\begingroup$ In an efficient market, when new information arrives, both the demand and the supply curve shift to change the equilibrium price. It is not a suuply driven (nor a demand driven) adjustment, both the buyer and the seller redraw their curves (even if there is no trading at all). $\endgroup$
    – nbbo2
    Commented Sep 1, 2019 at 17:01


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