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Predatory Trading

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

Markus K. Brunnermeier

Princeton University - Department of Economics

September 2004

NBER Working Paper No. w10755

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.

Number of Pages in PDF File: 56

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Date posted: September 27, 2004  

Suggested Citation

Pedersen, Lasse Heje and Brunnermeier, Markus K., Predatory Trading (September 2004). NBER Working Paper No. w10755. Available at SSRN: https://ssrn.com/abstract=590767

Contact Information

Lasse Heje Pedersen (Contact Author)
AQR Capital Management, LLC ( email )
Greenwich, CT
United States

Copenhagen Business School - Department of Finance ( email )
Solbjerg Plads 3
Frederiksberg, DK-2000
New York University (NYU) ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Markus Konrad Brunnermeier
Princeton University - Department of Economics ( email )
Bendheim Center for Finance
Princeton, NJ
United States
609-258-4050 (Phone)
609-258-0771 (Fax)
HOME PAGE: http://www.princeton.edu/¡­markus

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References:  36
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