Predators and Prey on Wall Street

Maria Chaderina, Richard Green

Publication: Scientific journalJournal articlepeer-review


Much financial activity is zero-sum. While providing transactional and diversification services to others, participants also prey upon each other. High-ability predators trade opportunistically with less-able prey. In our dynamic model these features amplify real shocks. The presence of more low-ability traders reduces expected losses to high-ability traders, leading to equilibria with high levels of financial activity and employment. Shocks to profits can motivate exit by low-ability traders, rendering those of intermediate skill more vulnerable. Thus, our relatively simple model generates boom-bust dynamics suggestive of Wall Street.
Original languageEnglish
Pages (from-to)1 - 38
JournalReview of Asset Pricing Studies
Issue number1
Publication statusPublished - 2014

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