Predatory Short Selling

Markus Brunnermeier and Martin Oehmke

Review of Finance, 2014, vol. 18, issue 6, 2153-2195

Abstract: Financial institutions may be vulnerable to predatory short selling. When the stock of a financial institution is shorted aggressively, leverage constraints imposed by short-term creditors can force the institution to liquidate long-term investments at fire sale prices. For financial institutions that are sufficiently close to their leverage constraints, predatory short-selling equilibria coexist with no-liquidation equilibria (the vulnerability region) or may even be the unique equilibrium outcome (the doomed region). Increased coordination among short sellers expands the doomed region, where liquidation is the unique equilibrium. Our model provides a potential justification for temporary restrictions on short selling of vulnerable institutions and can be used to assess recent empirical evidence on short-sale bans.

Date: 2014
References: View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rft043 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Predatory short selling (2014)
Working Paper: Predatory Short Selling (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:revfin:v:18:y:2014:i:6:p:2153-2195.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Review of Finance is currently edited by Marcin Kacperczyk

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().