Predatory Trading

Markus Brunnermeier and Lasse 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)
Date: 2004-09
New Economics Papers: this item is included in nep-fin
Note: AP
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Citations: View citations in EconPapers (1)

Published as Markus K. Brunnermeier & Lasse Heje Pedersen, 2005. "Predatory Trading," Journal of Finance, American Finance Association, vol. 60(4), pages 1825-1863, 08.

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Journal Article: Predatory Trading (2005)
Working Paper: Predatory Trading (2004)
Working Paper: Predatory Trading (2004)
Working Paper: Predatory trading (2003)
Working Paper: Predatory Trading (2003)
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