Bear raid

A bear raid is a type of stock market strategy, where a trader (or group of traders) attempts to force down the price of a stock to cover a short position. The name is derived from the common use of bear or bearish in the language of market sentiment to reflect the idea that investors expect downward price movement.^[1]

A bear raid can be done by spreading negative rumors or misinformation about the target firm,^[2] which puts downward pressure on the share price. This is typically considered a form of securities fraud.^{[citation needed]} Alternatively, traders could take on large short positions themselves, manipulating the price with the large volume of selling,^[3] making the strategy self-perpetuating.^{[citation needed]}

History

The practice of bear raid has its roots in the 17th-century Dutch Republic. In 1609, Isaac Le Maire, a sizeable shareholder of the Dutch East India Company (VOC), organized a bear raid on the stock of the company.^[4]

References

^ Law, Jonathan, ed. (2008). A dictionary of finance and banking (4th ed.). Oxford: Oxford University Press. ISBN 9780199229741. Retrieved 22 November 2014.
^ Malik, Andrew; Sarna, David E.Y. (2010). History of Greed Financial Fraud from Tulip Mania to Bernie Madoff. Hoboken: John Wiley & Sons. p. 62. ISBN 9780470877708. Retrieved 22 November 2014.
^ Scott, David L. (2003). Wall Street words : an A to Z guide to investment terms for today's investor (3rd ed., newly revised and updated. ed.). Boston: Houghton Mifflin. p. 28. ISBN 0618176519. Retrieved 22 November 2014.
^ Sayle, Murray (2001-04-05). "Japan goes Dutch". London Review of Books. 23 (7): 3–7. ISSN 0260-9592. Retrieved 2017-11-01. ...Dutch market punters pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we now know them. With them came specialised offshoots – insurance, retirement funds and other orderly forms of investment – and the maladies of capitalism: the boom-bust cycle, the world's first asset-inflation bubble, the tulip mania of 1636-37, and even, in 1607, history's first bear raider, a canny shareholder named Isaac le Maire who dumped his VOC stock, forcing the price down, and then bought it back at a discount.

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[1] Law, Jonathan, ed. (2008). A dictionary of finance and banking (4th ed.). Oxford: Oxford University Press. ISBN 9780199229741. Retrieved 22 November 2014.

[2] Malik, Andrew; Sarna, David E.Y. (2010). History of Greed Financial Fraud from Tulip Mania to Bernie Madoff. Hoboken: John Wiley & Sons. p. 62. ISBN 9780470877708. Retrieved 22 November 2014.

[3] Scott, David L. (2003). Wall Street words : an A to Z guide to investment terms for today's investor (3rd ed., newly revised and updated. ed.). Boston: Houghton Mifflin. p. 28. ISBN 0618176519. Retrieved 22 November 2014.

[4] Sayle, Murray (2001-04-05). "Japan goes Dutch". London Review of Books. 23 (7): 3–7. ISSN 0260-9592. Retrieved 2017-11-01. ...Dutch market punters pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we now know them. With them came specialised offshoots – insurance, retirement funds and other orderly forms of investment – and the maladies of capitalism: the boom-bust cycle, the world's first asset-inflation bubble, the tulip mania of 1636-37, and even, in 1607, history's first bear raider, a canny shareholder named Isaac le Maire who dumped his VOC stock, forcing the price down, and then bought it back at a discount.

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History

See also

References