Activist investors are often seen as independent players. Each builds a stake, pushes for change and captures value. But in reality, activism involves more and more block holders targeting the same firm. This paper presents a new perspective. Activists do not need formal coordination to act together. Instead, they use market signals. Trading itself becomes a way to influence other investors. The result is a subtle but powerful mechanism. Activists can shape each other’s behavior and ultimately, the value of the firm.
Leader-Follower Dynamics in Shareholder Activism
- Doruk Cetemen, Gonzalo Cisternas, Aaron Kolb, S. Viswanathan
- Journal of Finance, 2026
- A version of this paper can be found here here
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Key academic insights
Activists coordinate without clear agreements
The paper shows that many activists can be coordinated simply through trading. A “leader” trades first. A “follower” interprets that trade as a signal for future activity. This creates a form of implicit coordination without communication or formal group formation.
Trading is not just about profits. it’s about influence
In classical models, investors trade to exploit information. Here, trading also shapes the beliefs of other investors. A leader’s relationships influence how followers perceive the firm’s value and expected activism. This creates a second channel of incentives beyond the impact of price.
The correlation between activists changes everything
If activists have similar positions or views, market signals become more powerful. With positive correlation, leaders can sell on average to influence followers. With negative correlation, they buy more aggressively. This overturns the traditional idea that informed trading is always unpredictable.
Leadership creates real effects on corporate governance
Because ownership determines effort, trading decisions affect the extent of activist intervention. When leaders lower their stakes, they shift costs to followers. When they raise it, they take on more responsibility. This directly affects firm value and governance outcomes.
Prices reflect the dynamics of activism
When activation is present, prices deviate from normal STANDARDS. With positive correlation, prices tend to be lower on average. With negative correlation, higher. These “abnormal” price patterns help explain empirical findings about activist events.
Practical applications for investment advisors
Rethink how activism works
Don’t view activist investors as isolated actors. Their interactions matter. Results depend not only on the fundamentals, but also on how investors influence each other through the markets.
Interpret trading signals more carefully
Big trades by activists aren’t always outright bets on value. They can be strategic signals designed to influence other investors. Context is critical.
Be careful with event-driven strategies
Price movements around activism events may reflect coordination dynamics, not just information. This can affect timing, expected returns and risk.
Focus on ownership structure
The degree of similarity between investors matters. Firms with more blockholders may experience different outcomes than those with more heterogeneous investors.
How to explain this to customers
“Activist investing is not only about the entry and regulation of a company by one investor. Many investors are often involved, even if they are not formally coordinated. They watch each other’s movements and react. Sometimes even using trades as signals. This interaction can amplify the impact on the company, but it can also create unexpected market behavior. Understanding these dynamic events helps to move them”
The most important chart from the paper
Figure 4 presents leader and follower gains under sequential vs. simultaneous moves.
Results are hypothetical results and are NOT an indication of future results and do NOT represent returns actually achieved by any investor. Indices are not managed and do not reflect management or trading fees and one cannot invest directly in an index.
ABSTRACT
This paper develops a theory of the interaction between activist blockholders, focusing on how they coordinate without clear agreements. By introducing sequential trading and interdependent private information, the model shows how a principal activist can use market signals to influence the behavior of followers. Trading decisions affect not only prices but also the incentives of other investors to buy shares and engage in governance. The results highlight how these dynamics shape firm value, stock prices, and activism effectiveness, providing new insights into multi-activist interventions and their real economic impact.
Leader-Follower Dynamics in Shareholder Activism originally published in Alpha Architect. Please read the Alpha Architect FINDINGS at your convenience.
