Predatory trading

Markus Brunnermeier and Lasse Heje Pederson

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 assets.

Keywords: predation; valuation; liquidity; risk management; systemic risk (search for similar items in EconPapers)
JEL-codes: G10 G32 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2003-03
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Downloads: (external link)
http://eprints.lse.ac.uk/24829/ Open access version. (application/pdf)

Related works:
Journal Article: Predatory Trading (2005)
Working Paper: Predatory Trading (2004)
Working Paper: Predatory Trading (2004)
Working Paper: Predatory Trading (2004)
Working Paper: Predatory Trading (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24829

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