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Predatory Trading

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  • Lasse H. Pedersen
  • Markus Brunnermeier

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 pro ts from triggering another trader's crisis, and the crisis can spill over across traders and across assets

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File URL: http://pages.stern.nyu.edu/~lpederse/papers/predatory_trading.pdf
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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 425.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:425

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Keywords: asset pricing;

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References

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  20. Chan, Louis K C & Lakonishok, Josef, 1995. " The Behavior of Stock Prices around Institutional Trades," Journal of Finance, American Finance Association, vol. 50(4), pages 1147-74, September.
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