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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26812
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| Title: | PREDATORY TRADING |
| Authors: | Brunnermeier, Markus K.
Pedersen, Lasse Heje |
| Keywords: | Predation
Valuation
Liquidity
Risk Management
Systemic Risk |
| Issue Date: | 10-Dec-2003 |
| Series/Report no.: | S-DRP-03-14 |
| 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 markets. |
| URI: | http://hdl.handle.net/2451/26812 |
| Appears in Collections: | Derivatives Research
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