Brunnermeier, Markus K. and Pederson, Lasse Heje (2003) Predatory trading. Discussion paper, 441. Financial Markets Group, London School of Economics and Political Science, London, UK.
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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.lse.ac.uk |
| Additional Information: | © 2003 The Authors |
| Library of Congress subject classification: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| Sets: | Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| Identification Number: | 441 |
| URL: | http://eprints.lse.ac.uk/24829/ |
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