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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/26812

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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