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.
If you would like to be added to the distribution list or for further details regarding this seminar, please contact Erik Madsen at em193@nyu.edu