Predatory Short Selling* | Zendy

Markus K. Brunnermeier | Zendy; Martin Oehmke | Zendy

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Predatory Short Selling*

Author(s) -

Markus K. Brunnermeier,

Martin Oehmke

Publication year - 2013

Publication title -

european finance review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.933

H-Index - 61

eISSN - 1573-692X

pISSN - 1382-6662

DOI - 10.1093/rof/rft043

Subject(s) - leverage (statistics) , creditor , business , financial institution , stock (firearms) , monetary economics , institution , economics , financial economics , finance , debt , geography , archaeology , machine learning , computer science , political science , law

Financial institutions may be vulnerable to predatory short selling. When the stock of a financial institution is shorted aggressively, leverage constraints imposed\udby short-term creditors can force the institution to liquidate long-term investments at fire sale prices. For financial institutions that are sufficiently close to their leverage constraints, predatory short selling equilibria co-exist with no-liquidation equilibria (the vulnerability region), or may even be the unique equilibrium outcome (the doomed region). Increased\udcoordination among short sellers expands the doomed region, where liquidation is the\udunique equilibrium. Our model provides a potential justification for temporary restrictions\udof short selling for vulnerable institutions and can be used to assess recent empirical\udevidence on short-sale bans

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