City Research Online

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.

Publication Type:	Monograph (Discussion Paper)
Additional Information:	Copyright, the authors, 2022.
Publisher Keywords:	activism, insider trading, noisy signaling, price manipulation, hedge funds
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Departments:	School of Policy & Global Affairs > Economics School of Policy & Global Affairs > Economics > Discussion Paper Series

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