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Predatory Trading

Author

Listed:
  • 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

Suggested Citation

  • Lasse H. Pedersen & Markus Brunnermeier, 2004. "Predatory Trading," Econometric Society 2004 North American Winter Meetings 425, Econometric Society.
  • Handle: RePEc:ecm:nawm04:425
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    References listed on IDEAS

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    More about this item

    Keywords

    asset pricing;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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