Stock Price Manipulation, Market Microstructure and Asymmetric Information
In recent years, there has been a large literature on how stock exchange specialists set prices when there are investors who know more about the stock than they do. An important assumption in this literature is that there are *liquidity traders* who are equally likely to buy or sell for exogenous reasons. It is plausible that some buyers have cash needs and are forced to sell their stock. However, buyers will usually be able to choose the time at which they trade. It will be optimal for them to minimize the probability of trading with informed investors by choosing an appropriate time to trade and clustering at that time. This asymmetry means that when liquidity buyers are not clustering, purchases are more likely to be by an informed trader than sales so the price movement resulting from a purchase is larger than for a sale. As a result, profitable manipulation by uninformed investors may occur. A model where the specialist takes account of the possibility of manipulation in equilibrium is presented.
|Date of creation:||Oct 1991|
|Date of revision:|
|Publication status:||published as European Economic Review, Vol. 36, nos. 2/3 (April 1992): 624-630.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benabou, Roland & Laroque, Guy, 1992.
"Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility,"
The Quarterly Journal of Economics,
MIT Press, vol. 107(3), pages 921-58, August.
- Benabou, R. & Laroque, G., 1988. "Using Privileged Information To Manipulate Markets: Insiders, Gurus And Credibility," Papers 19, Princeton, Woodrow Wilson School - Discussion Paper.
- Benabou, R. & Laroque, G., 1989. "Using Privileged Information To Manipulate Markets: Insiders, Gurus, And Credibility," Working papers 513, Massachusetts Institute of Technology (MIT), Department of Economics.
- Allen, Franklin & Gale, Douglas, 1992. "Stock-Price Manipulation," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 503-29.
- Vila, Jean-Luc, 1989. "Simple games of market manipulation," Economics Letters, Elsevier, vol. 29(1), pages 21-26.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
- 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.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3862. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.