Activist Trading Dynamics

Title: Activist Trading Dynamics

Speaker: Gonzalo Cisternas (Federal Reserve Bank of New York)

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 in light of the empirical literature on activism and discuss its connection with the phenomenon of “wolf-pack” activism. We also explore the possibility of equilibria in which activists trade against their initial positions.