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Activist Trading Dynamics

Esat Doruk Cetemen, Gonzalo Cisternas, Aaron Kolb () and S Viswanathan ()
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No 1030, Staff Reports from Federal Reserve Bank of New York

Abstract: Two activists with correlated private positions in a firm's stock trade sequentially before simultaneously exerting effort to determine the firm's value. A novel linear equilibrium exists in which trades have positive sensitivity to initial positions but are nonzero on average: the leader strategically moves the price to induce the follower to acquire more shares and thus add more value. We examine this equilibrium's implications for market outcomes and its connection with the prominent phenomenon of “wolf pack” activism, whereby multiple hedge funds target the same firm. We also explore the possibility of equilibria in which activists trade against their initial positions.

Keywords: activism; insider trading; noisy signaling; hedge funds (search for similar items in EconPapers)
JEL-codes: D82 G14 G23 (search for similar items in EconPapers)
Pages: 60
Date: 2022-09-01
New Economics Papers: this item is included in nep-gth and nep-mst
Note: Revised February 2023. Previous title: “Activist Manipulation Dynamics”
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