TY - JOUR AU - Brunnermeier,Markus K. AU - Pedersen,Lasse Heje TI - Predatory Trading JF - National Bureau of Economic Research Working Paper Series VL - No. 10755 PY - 2004 Y2 - September 2004 DO - 10.3386/w10755 UR - http://www.nber.org/papers/w10755 L1 - http://www.nber.org/papers/w10755.pdf N1 - Author contact info: Markus K. Brunnermeier Princeton University Department of Economics Bendheim Center for Finance Princeton, NJ 08540 Tel: 609/258-4050 Fax: 609/258-0771 E-Mail: markus@princeton.edu Lasse H. Pedersen Copenhagen Business School Solbjerg Plads 3, A5 DK-2000 Frederiksberg DENMARK E-Mail: Lhp001@gmail.com AB - 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. ER -