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Liquidation in the Face of Adversity: Stealth Vs. Sunshine Trading, Predatory Trading Vs. Liquidity Provision

Torsten Schoeneborn and Alexander Schied
Authors registered in the RePEc Author Service: Torsten Schöneborn

MPRA Paper from University Library of Munich, Germany

Abstract: We consider a multi-player situation in an illiquid market in which one player tries to liquidate a large portfolio in a short time span, while some competitors know of the seller's intention and try to make a pro¯t by trading in this market over a longer time horizon. We show that the liquidity characteristics, the number of competitors in the market and their trading time horizons determine the optimal strategy for the competitors: they either provide liquidity to the seller, or they prey on her by simultaneous selling. Depending on the expected competitor behavior, it might be sensible for the seller to pre-announce a trading intention (\sunshine trading") or to keep it secret (\stealth trading").

Keywords: Liquidity; liquidity crisis; liquidity provision; optimal liquidation strategies; predatory trading; sunshine trading; stealth trading (search for similar items in EconPapers)
JEL-codes: G10 G12 G33 (search for similar items in EconPapers)
Date: 2007-11-01
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (7) Track citations by RSS feed

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