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Article: Short-selling attacks and creditor runs

TitleShort-selling attacks and creditor runs
Authors
KeywordsCoordination
Short-selling attacks
Information asymmetry
Feedback
Creditor runs
Issue Date2015
Citation
Management Science, 2015, v. 61, n. 4, p. 814-830 How to Cite?
Abstract© 2015 INFORMS. This paper investigates the mechanism through which short selling of a bank's stocks can trigger the failure of the bank. In the model, creditors, who learn information from stock prices, will grow increasingly unsure about the bank's true fundamentals in facing noisier stock prices; thus a run on the bank is more likely because of creditors' concave payoff. Understanding this, speculators conduct short selling beforehand to amplify (il)liquidity and add noise to stock prices, triggering a bank run, and subsequently profit from the bank's failure. We show that short-selling attacks on a bank involve two runs: the aggressive run among speculators and the conservative run among creditors. These two runs interact and reinforce each other, with compound feedback loops that drastically increase the probability of the collapse of the bank. We discuss policy implications of the model.
Persistent Identifierhttp://hdl.handle.net/10722/279316
ISSN
2023 Impact Factor: 4.6
2023 SCImago Journal Rankings: 5.438
SSRN
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorLiu, Xuewen-
dc.date.accessioned2019-10-28T03:02:18Z-
dc.date.available2019-10-28T03:02:18Z-
dc.date.issued2015-
dc.identifier.citationManagement Science, 2015, v. 61, n. 4, p. 814-830-
dc.identifier.issn0025-1909-
dc.identifier.urihttp://hdl.handle.net/10722/279316-
dc.description.abstract© 2015 INFORMS. This paper investigates the mechanism through which short selling of a bank's stocks can trigger the failure of the bank. In the model, creditors, who learn information from stock prices, will grow increasingly unsure about the bank's true fundamentals in facing noisier stock prices; thus a run on the bank is more likely because of creditors' concave payoff. Understanding this, speculators conduct short selling beforehand to amplify (il)liquidity and add noise to stock prices, triggering a bank run, and subsequently profit from the bank's failure. We show that short-selling attacks on a bank involve two runs: the aggressive run among speculators and the conservative run among creditors. These two runs interact and reinforce each other, with compound feedback loops that drastically increase the probability of the collapse of the bank. We discuss policy implications of the model.-
dc.languageeng-
dc.relation.ispartofManagement Science-
dc.subjectCoordination-
dc.subjectShort-selling attacks-
dc.subjectInformation asymmetry-
dc.subjectFeedback-
dc.subjectCreditor runs-
dc.titleShort-selling attacks and creditor runs-
dc.typeArticle-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1287/mnsc.2014.1997-
dc.identifier.scopuseid_2-s2.0-84926674786-
dc.identifier.volume61-
dc.identifier.issue4-
dc.identifier.spage814-
dc.identifier.epage830-
dc.identifier.eissn1526-5501-
dc.identifier.isiWOS:000352495300007-
dc.identifier.ssrn1780240-
dc.identifier.issnl0025-1909-

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