Supply and demand are inelastic in equity markets: A small shock (to supply or demand) leads to a drastic price movement (in share prices)

Because savers/investors are not very responsive or are subject to balance sheet composition and risk level constraints, demand for shares is inelastic (it reacts little to share prices). Because companies' financing is decided in advance, the supply of shares is also inelastic. The consequence of the fact that demand and supply of shares are inelastic (react little to changes in share prices) is that shocks (supply or demand) have very significant effects on prices (stock market indices). To reduce the volatility of share prices, it would therefore be necessary in particular for demand for shares to be more elastic (react more to prices), and therefore for there to be more responsive savers/investors without constraints.