Activist Manipulation Dynamics

Esat Doruk Cetemen, G. Cisternas, A. Kolb and S. Viswanathan

Working Papers from Department of Economics, City University London

Abstract: Two activists with correlated private positions in a firm's stock trade sequentially before simultaneously exerting effort that determines the firm's value. We document the existence of a novel linear equilibrium in which an activist's trades have positive sensitivity to her block size, but such orders are not zero on average: the leader activist manipulates the price to induce the follower to acquire a larger position and thus add more value. We examine the implications of this equilibrium for market outcomes and discuss its connection with the prominent phenomenon of \wolf-pack" activism: multiple hedge funds engaging in parallel with a target firm. We also explore the possibility of other equilibria where the activists trade against their initial positions.

Keywords: activism; insider trading; noisy signaling; price manipulation; hedge funds (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:cty:dpaper:22/04

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