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Price Pressure Of Trading And Equity Prices In Hedge Fund Activism

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  • Atanas Mihov

Abstract

In this article, I offer and examine a price pressure hypothesis, which states that stock prices of activism targets temporarily deviate from fundamentals. Increased demand for target stocks upon the formation of activist positions exerts upward pressure on targets’ stock prices in the short term. Such effects are driven by illiquid stocks whose prices are sensitive to order‐flow imbalances. When activists use private transactions, price pressure effects are muted. As buying pressure subsides and reverses over the long run, targets’ stock prices decline proportionately to predisclosure accumulations, driven again by illiquid stocks. These price dynamics have important implications for activists’ block‐formation strategies and, more generally, shareholder activism.

Suggested Citation

  • Atanas Mihov, 2020. "Price Pressure Of Trading And Equity Prices In Hedge Fund Activism," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(1), pages 153-184, March.
  • Handle: RePEc:bla:jfnres:v:43:y:2020:i:1:p:153-184
    DOI: 10.1111/jfir.12203
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    Cited by:

    1. Mustafa O. Caglayan & Umut Celiker & Gokhan Sonaer, 2022. "Disagreement between hedge funds and other institutional investors and the cross‐section of expected stock returns," The Financial Review, Eastern Finance Association, vol. 57(3), pages 663-689, August.

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