Predatory trading (2005)
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| Venue: | J. Finance |
| Citations: | 22 - 5 self |
BibTeX
@ARTICLE{Brunnermeier05predatorytrading,
author = {Markus K. Brunnermeier and Lasse Heje Pedersen and Stephen Figlewski and Joel Hasbrouck and David Modest and Michael Rashes and José Scheinkman and Ken Singleton and Jeremy Stein and Marti Subrahmanyam and Peter Sørensen and Jeff Wurgler and As Well},
title = {Predatory trading},
journal = {J. Finance},
year = {2005},
pages = {1825--1863}
}
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Abstract
This paper studies predatory trading: trading that induces and/or exploits other investors ’ need to reduce their positions. We show that if one trader needs to sell, others also sell and subsequently buy back the asset. This leads to price overshooting, and a reduced liquidation value for the distressed trader. Hence, the market is illiquid when liquidity is most needed. Further, a trader profits from triggering another trader’s crisis, and the crisis can spill over across traders and across assets.
