Abstract
We develop an equilibrium model of strategic trading under financial constraints. Investors have access to a fundamentally riskless arbitrage opportunity, but may be forced to re-sell if their capital does not fully cover their losses. Investors internalize both their price impact and the e⁄ffect of price movements on the constraints of all market participants, giving rise to a strategic motive for the less exposed investors to induce re-sales of more exposed ones. Ex ante, the presence of predatory risk leads to lower investment by all traders. We show the implications of strategic trading on price dynamics, returns characteristics, and leverage cross-section and dynamics.
Originalsprog | Engelsk |
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Publikationsdato | 2020 |
Antal sider | 44 |
Status | Udgivet - 2020 |
Begivenhed | The 80th Annual Meeting of American Finance Association. AFA 2020 - San Diego, USA Varighed: 3 jan. 2020 → 5 jan. 2020 Konferencens nummer: 80 https://afajof.org/annual-meeting/ |
Konference
Konference | The 80th Annual Meeting of American Finance Association. AFA 2020 |
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Nummer | 80 |
Land/Område | USA |
By | San Diego |
Periode | 03/01/2020 → 05/01/2020 |
Internetadresse |
Emneord
- Limits to arbitrage
- Liquidity
- Wealth e⁄ffects
- Strategic trading
- Endogenous risk