Predatory Trading

Markus K. Brunnermeier () and Lasse Heje Pedersen

No 10755, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G0 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: Written
Note: AP
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Related works:
Working Paper: Predatory Trading (2004)
Working Paper: Predatory Trading (2003)
Working Paper: Predatory Trading (2004)
Journal Article: Predatory Trading (2005)
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