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

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Author Info
Schoeneborn, Torsten
Schied, Alexander

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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").

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5548.

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Date of creation: 01 Nov 2007
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Handle: RePEc:pra:mprapa:5548

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Related research
Keywords: Liquidity liquidity crisis liquidity provision optimal liquidation strategies predatory trading sunshine trading stealth trading

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Frey, Rüdiger, 1997. "Derivative Asset Analysis in Models with Level-Dependent and Stochastic Volatility," Discussion Paper Serie B 401, University of Bonn, Germany. [Downloadable!]
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  6. Barclay, Michael J. & Warner, Jerold B., 1993. "Stealth trading and volatility : Which trades move prices?," Journal of Financial Economics, Elsevier, vol. 34(3), pages 281-305, December. [Downloadable!] (restricted)
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    Other versions:
  19. Foster, F Douglas & Viswanathan, S, 1996. " Strategic Trading When Agents Forecast the Forecasts of Others," Journal of Finance, American Finance Association, vol. 51(4), pages 1437-78, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Schied, Alexander & Schoeneborn, Torsten, 2008. "Risk aversion and the dynamics of optimal liquidation strategies in illiquid markets," MPRA Paper 7105, University Library of Munich, Germany. [Downloadable!]
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