Activist Trading Dynamics

RePEc Short ID: pce204
ORCID iD: 0000-0002-1934-4685

Cetemen, Doruk; Cisternas, Gonzalo; Kolb, Aaron; Viswanathan, S

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Activist Trading Dynamics

Abstract: Two activists with correlated private positions in a firm's stock trade sequentially before simultaneously exerting effort to determine the firm's value. A novel linear equilibrium exists in which trades have positive sensitivity to initial positions but are nonzero on average: the leader strategically moves the price to induce the follower to acquire more shares and thus add more value. We examine this equilibrium's implications for market outcomes and its connection with the prominent phenomenon of “wolf pack” activism, whereby multiple hedge funds target the same firm. We also explore the possibility of equilibria in which activists trade against their initial positions.

Keywords: activism; insider trading; noisy signaling; hedge funds;

JEL Classification: D82; G14; G23;