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ABSTRACT
We model the strategic interaction between the large investor and follower to explore the rationale of following behaviour and predatory trading. It is shown that the large investor behaves like a predator, and can prey on the follower with superior information. In addition, our study concludes that market liquidity and the informativeness of prices both increase with the precision of follower’s order signal.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. Throughout this article, we will use ‘her’/“she” to refer to the large investor and use ‘his’/“he” to refer to the follower.
Additional information
Funding
This work was supported by the National Natural Science Foundation of China [71771008]; Supporting Plan for Top Talents in Humanities and Social Sciences [YWF-19-BJ-W-45]; China Postdoctoral Science Foundation [2019M660424].