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Stock Price Manipulation : The Role of Intermediaries

  • Hammad Siddiqi

    (LUMS)

We set out to study stock price manipulation when the manipulator is in the role of an intermediary (broker). We find that in the absence of superior information, the broker can manipulate equilibrium outcomes without losing its credibility with respect to accurate forecasting. The result extends to the case when the broker prefers more investment to come into the market. However, when moderate competition among brokers is introduced, then the investors get a favored outcome. When competition exceeds a certain threshold, neither the brokers nor the investors get their respective favored outcomes. In any case, if the broker bias for more investment dominates competition, the brokers get their favorite outcome at the expense of investors.

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File URL: http://www.eaber.org/node/22280
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Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22280.

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Date of creation: Jan 2007
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Handle: RePEc:eab:financ:22280
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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  1. Farrell, Joseph & Gibbons, Robert, 1988. "Cheap Talk Can Matter in Bargaining," Department of Economics, Working Paper Series qt3qz786xq, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Jung, Hanjoon Michael, 2007. "Strategic Information Transmission through the Media," MPRA Paper 5556, University Library of Munich, Germany, revised Oct 2007.
  3. J. Farrell, 2010. "Meaning and Credibility in Cheap Talk Games," Levine's Working Paper Archive 533, David K. Levine.
  4. Farrell, J. & Gibbons, R., 1989. "Cheap Talk With Two Audiences," Working papers 518, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Allen, Franklin & Gale, Douglas, 1992. "Stock-Price Manipulation," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 503-29.
  6. Khwaja, Asim Ijaz & Mian, Atif, 2005. "Unchecked intermediaries: Price manipulation in an emerging stock market," Journal of Financial Economics, Elsevier, vol. 78(1), pages 203-241, October.
  7. Sandeep Baliga & Stephen Morris, 2000. "Coordination, Spillovers, and Cheap Talk," Discussion Papers 1301, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Jarrow, Robert A., 1992. "Market Manipulation, Bubbles, Corners, and Short Squeezes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(03), pages 311-336, September.
  9. van Damme, E.E.C., 1989. "Stable equilibria and forward induction," Other publications TiSEM bd598a8f-f017-4cab-a9ed-8, Tilburg University, School of Economics and Management.
  10. Robert J. Aumann & Sergiu Hart, 2003. "Long Cheap Talk," Econometrica, Econometric Society, vol. 71(6), pages 1619-1660, November.
    • Robert J. Aumann & Sergiu Hart, 2002. "Long Cheap Talk," Discussion Paper Series dp284, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem, revised Nov 2002.
  11. repec:ner:tilbur:urn:nbn:nl:ui:12-154422 is not listed on IDEAS
  12. Banks, Jeffrey S. & Sobel, Joel., 1985. "Equilibrium Selection in Signaling Games," Working Papers 565, California Institute of Technology, Division of the Humanities and Social Sciences.
  13. Rajesh K. Aggarwal & Guojun Wu, 2006. "Stock Market Manipulations," The Journal of Business, University of Chicago Press, vol. 79(4), pages 1915-1954, July.
  14. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
  15. Marco Battaglini, 1999. "Multiple Referrals and Multidimensional Cheap Talk," Discussion Papers 1295, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
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