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Activist Manipulation Dynamics

Author

Listed:
  • Cetemen, D.
  • Cisternas, G.
  • Kolb, A.
  • Viswanathan, S.

Abstract

Two activists with correlated private positions in a firm's stock trade sequentially before simultaneously exerting effort that determines the firm's value. We document the existence of a novel linear equilibrium in which an activist's trades have positive sensitivity to her block size, but such orders are not zero on average: the leader activist manipulates the price to induce the follower to acquire a larger position and thus add more value. We examine the implications of this equilibrium for market outcomes and discuss its connection with the prominent phenomenon of \wolf-pack" activism: multiple hedge funds engaging in parallel with a target firm. We also explore the possibility of other equilibria where the activists trade against their initial positions.

Suggested Citation

  • Cetemen, D. & Cisternas, G. & Kolb, A. & Viswanathan, S., 2022. "Activist Manipulation Dynamics," Working Papers 22/04, Department of Economics, City University London.
    • Handle: RePEc:cty:dpaper:22/04
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    File URL: https://openaccess.city.ac.uk/id/eprint/29385/1/1.%20Cetemen%20-%20Activist%20Manipulation%20Dynamics.pdf
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    References listed on IDEAS

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    Keywords

    activism; insider trading; noisy signaling; price manipulation; hedge funds;
    All these keywords.

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