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Predatory
Trading
| Co-author: |
Lasse Pedersen (New
York University) |
| Reference: |
Journal of
Finance, 60(4), 1825-1863. |
| Abstract: |
This
paper studies predatory trading, trading that induces
and/or exploits the need of other investors 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
markets. |
| Keywords: |
Predation, Valuation, Liquidity, Risk Management,
Exit Stress Test, Systemic Risk, Liquidity Crisis, LTCM |
| Presentation
Slides: |
PDF |
| Extra
Information: |
Winner of Barclays Global
Investors Award for the best conference paper at the European
Finance Association 2003. |
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accessible via the journal's website at
www.blackwellpublishing.com/journals/jofi
or
http://www.blackwell-synergy.com |
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