Working Paper No. 13-14/r Market Run-ups, Market Freezes, Inventories, and Leverage Federal Reserve Bank of Philadelphia

@inproceedings{Leitner2014WorkingPN,
  title={Working Paper No. 13-14/r Market Run-ups, Market Freezes, Inventories, and Leverage Federal Reserve Bank of Philadelphia},
  author={Yaron Leitner},
  year={2014}
}
We study trade between an informed seller and an uninformed buyer who have existing inventories of assets similar to those being traded. We show that these inventories may induce the buyer to increase the price (a “run-up”) but may also make trade impossible (a “freeze”) and hamper information dissemination. Competition may amplify the run-up by inducing buyers to purchase assets at a loss to prevent competitors from purchasing at lower prices and releasing bad news about inventories. In a… CONTINUE READING