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PRICE PRESSURE OF TRADING AND EQUITY PRICES IN HEDGE FUND ACTIVISM
Author(s) -
Mihov Atanas
Publication year - 2020
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12203
Subject(s) - hedge fund , equity (law) , stock (firearms) , monetary economics , economics , stock price , price formation , shareholder , market liquidity , financial economics , business , finance , corporate governance , mechanical engineering , paleontology , series (stratigraphy) , political science , law , biology , engineering
In this article, I offer and examine a price pressure hypothesis, which states that stock prices of activism targets temporarily deviate from fundamentals. Increased demand for target stocks upon the formation of activist positions exerts upward pressure on targets’ stock prices in the short term. Such effects are driven by illiquid stocks whose prices are sensitive to order‐flow imbalances. When activists use private transactions, price pressure effects are muted. As buying pressure subsides and reverses over the long run, targets’ stock prices decline proportionately to predisclosure accumulations, driven again by illiquid stocks. These price dynamics have important implications for activists’ block‐formation strategies and, more generally, shareholder activism.