Predatory Trading

Markus Brunnermeier and Lasse Pedersen

No 4639, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 markets.

Keywords: Dealer exit stress test; Liquidity crisis; Predation; Valuation; Liquidity; Risk management; Systemic risk (search for similar items in EconPapers)
JEL-codes: G10 G12 G23 G24 (search for similar items in EconPapers)
Date: 2004-09
New Economics Papers: this item is included in nep-fin and nep-fmk
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP4639 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Predatory Trading (2005)
Working Paper: Predatory Trading (2004)
Working Paper: Predatory Trading (2004)
Working Paper: Predatory trading (2003)
Working Paper: Predatory Trading (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4639

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4639

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().