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Stock Price Manipulation: The Role of Intermediaries

  • Siddiqi, Hammad

We model 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 credibility with respect to accurate forecasting. This result extends to the case when the broker prefers more investment to come into the market. However, when competition among brokers is introduced then the investors get their favorite outcome in the absence of superior information. This result has important implications for encouraging broker competitions in developing markets. Many developing markets are still not demutualized; hence broker level competition is limited in such markets.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6374.

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Date of creation: Dec 2007
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Handle: RePEc:pra:mprapa:6374
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  1. Sandeep Baliga & Stephen Morris, 2000. "Coordination, Spillovers, and Cheap Talk," Discussion Papers 1301, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Rajesh K. Aggarwal & Guojun Wu, 2006. "Stock Market Manipulations," The Journal of Business, University of Chicago Press, vol. 79(4), pages 1915-1954, July.
  3. Allen, Franklin & Gale, Douglas, 1992. "Stock-Price Manipulation," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 503-29.
  4. 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.
  5. Farrell, J. & Gibbons, R., 1989. "Cheap Talk With Two Audiences," Working papers 518, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Robert Gibbons & Joseph Farrell, 1988. "Cheap Talk Can Matter in Bargaining," Working papers 482, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Jung, Hanjoon Michael, 2007. "Strategic Information Transmission through the Media," MPRA Paper 5556, University Library of Munich, Germany, revised Oct 2007.
  8. Farrell, Joseph, 1986. "Meaning and Credibility in Cheap-Talk Games," Department of Economics, Working Paper Series qt4968n3fz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. van Damme,Eric, 1987. "Stable equilibria and forward induction," Discussion Paper Serie A 128, University of Bonn, Germany.
  10. Marco Battaglini, 2002. "Multiple Referrals and Multidimensional Cheap Talk," Econometrica, Econometric Society, vol. 70(4), pages 1379-1401, July.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
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