IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v51y2023ics1544612322006390.html
   My bibliography  Save this article

Public information manipulation in the financial market

Author

Listed:
  • Wang, Bo
  • Zheng, Suli

Abstract

Which factor might shape investor’s sentiment in the financial market? We answer this question by introducing information manipulation into the micro-structure of a financial market. In our model, an insider inflates the fundamental to boost the equilibrium market price. Because the manipulation cost is private information, the investors treat the manipulation as a noisy signal, or rather, sentiment. The manipulation turns out to be a linear combination of fundamental and manipulation cost. The equilibrium level of manipulation decreases with market supply elasticity and transparency. Overall, our theory suggests insider’s manipulation as a possible source of market sentiment.

Suggested Citation

  • Wang, Bo & Zheng, Suli, 2023. "Public information manipulation in the financial market," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006390
    DOI: 10.1016/j.frl.2022.103463
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612322006390
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2022.103463?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. David López-Salido & Jeremy C. Stein & Egon Zakrajšek, 2017. "Credit-Market Sentiment and the Business Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1373-1426.
    2. Chris Edmond, 2013. "Information Manipulation, Coordination, and Regime Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(4), pages 1422-1458.
    3. Patrick Bolton & José Scheinkman & Wei Xiong, 2006. "Executive Compensation and Short-Termist Behaviour in Speculative Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 577-610.
    4. Little, Andrew T., 2017. "Propaganda and credulity," Games and Economic Behavior, Elsevier, vol. 102(C), pages 224-232.
    5. Lin Peng & Ailsa Röell, 2014. "Managerial Incentives and Stock Price Manipulation," Journal of Finance, American Finance Association, vol. 69(2), pages 487-526, April.
    6. Benhabib, Jess & Liu, Xuewen & Wang, Pengfei, 2016. "Sentiments, financial markets, and macroeconomic fluctuations," Journal of Financial Economics, Elsevier, vol. 120(2), pages 420-443.
    7. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    8. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, vol. 134(1), pages 93-116, May.
    9. Lin Peng & Ailsa Roell, 2008. "Manipulation and Equity-Based Compensation," American Economic Review, American Economic Association, vol. 98(2), pages 285-290, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bo, Wang & Suli, Zheng, 2023. "Optimal overconfidence in the presence of information manipulation," Economics Letters, Elsevier, vol. 231(C).
    2. Wang, Bo & Hu, Tiantian & Zheng, Suli, 2023. "Earning inflation, real investment and self-fulfilling uncertainty," Finance Research Letters, Elsevier, vol. 58(PC).
    3. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.
    4. Edmond, Chris & Lu, Yang K., 2021. "Creating confusion," Journal of Economic Theory, Elsevier, vol. 191(C).
    5. Calcagno, Riccardo & Heider, Florian, 2021. "Stock-based pay, liquidity, and the role of market making," Journal of Economic Theory, Elsevier, vol. 197(C).
    6. Heider, Florian & Calcagno, Riccardo, 2016. "Liquidity, Information Aggregation, and Market-Based Pay in an Efficient Market," CEPR Discussion Papers 11298, C.E.P.R. Discussion Papers.
    7. Abraham Aldama & Mateo Vásquez-Cortés & Lauren Elyssa Young, 2019. "Fear and citizen coordination against dictatorship," Journal of Theoretical Politics, , vol. 31(1), pages 103-125, January.
    8. Calcagno, Riccardo & Heider, Florian, 2004. "Market based compensation, trading and liquidity," DEE - Working Papers. Business Economics. WB wb046224, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    9. Denter, Philipp & Ginzburg, Boris, 2021. "Troll Farms and Voter Disinformation," MPRA Paper 109634, University Library of Munich, Germany.
    10. Armstrong, Christopher S. & Kepler, John D., 2018. "Theory, research design assumptions, and causal inferences," Journal of Accounting and Economics, Elsevier, vol. 66(2), pages 366-373.
    11. Kang, Chang-Mo & Kim, Donghyun, 2022. "Risk management transparency and compensation," Journal of Corporate Finance, Elsevier, vol. 75(C).
    12. Josef Schroth, 2018. "Managerial Compensation and Stock Price Manipulation," Journal of Accounting Research, Wiley Blackwell, vol. 56(5), pages 1335-1381, December.
    13. Calcagno, Riccardo & Heider, Florian, 2007. "Market based compensation, price informativeness and short-term trading," Working Paper Series 735, European Central Bank.
    14. Huang, Shiyang & Qiu, Zhigang & Yang, Liyan, 2020. "Institutionalization, delegation, and asset prices," Journal of Economic Theory, Elsevier, vol. 186(C).
    15. Wruck, Karen H. & Wu, YiLin, 2021. "The relation between CEO equity incentives and the quality of accounting disclosures: New evidence," Journal of Corporate Finance, Elsevier, vol. 67(C).
    16. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    17. repec:oup:rfinst:v:21:y:2017:i:5:p:1805-1846. is not listed on IDEAS
    18. Itay Goldstein, 2023. "Information in Financial Markets and Its Real Effects," Review of Finance, European Finance Association, vol. 27(1), pages 1-32.
    19. Paymon Khorrami & Fernando Mendo, 2021. "Rational Sentiments and Financial Frictions," Working Papers Central Bank of Chile 928, Central Bank of Chile.
    20. Rafkin, Charlie & Shreekumar, Advik & Vautrey, Pierre-Luc, 2021. "When guidance changes: Government stances and public beliefs," Journal of Public Economics, Elsevier, vol. 196(C).
    21. Lel, Ugur & Tepe, Mete, 2021. "Investor horizon and managerial short-termism," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 1-20.

    More about this item

    Keywords

    Information manipulation; Financial market; Sentiment;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006390. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.