Predatory trading

Brunnermeier, Markus K. and Pederson, Lasse Heje (2003) Predatory trading. Financial Markets Group Discussion Papers (441). Financial Markets Group, The London School of Economics and Political Science, London, UK.

PDF - Published Version Download (300kB)

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.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://fmg.ac.uk
Additional Information:	© 2003 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure G - Financial Economics > G1 - General Financial Markets > G10 - General
Date Deposited:	12 Aug 2009 11:04
Last Modified:	13 Sep 2024 19:49
URI:	http://eprints.lse.ac.uk/id/eprint/24829

Actions (login required)

View Item