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Predation by stock price manipulation

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  • Matta, Rafael
  • Rocha, Sergio H.
  • Vaz, Paulo

Abstract

We develop a model in which feedback effects from equity markets allow uninformed traders to profit by short selling a firm’s stock while going long on its product market competitor. As this strategy distorts the investment of the firm targeted by short selling to the benefit of its rival, we label it predation by stock price manipulation. A short selling ban does not prevent manipulation since the speculator can still induce a firm to underinvest by establishing a long position in its rival. Our analysis unveils how competitive interactions among firms expand the scope of manipulation, providing new insights into equity markets and short sales regulation.

Suggested Citation

  • Matta, Rafael & Rocha, Sergio H. & Vaz, Paulo, 2025. "Predation by stock price manipulation," Journal of Corporate Finance, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:corfin:v:92:y:2025:i:c:s0929119925000380
    DOI: 10.1016/j.jcorpfin.2025.102770
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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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