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Int. J. Financial Stud. 2017, 5(4), 24; https://doi.org/10.3390/ijfs5040024

Stock Price Manipulation: The Role of Intermediaries

Faculty of Business, Economics, and Law, The University of Queensland, Brisbane 4072, Australia
Received: 5 September 2017 / Revised: 19 October 2017 / Accepted: 23 October 2017 / Published: 25 October 2017
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Abstract

We model a scenario in which there are three types of investors: fundamentalists, speculators, and trend-followers and an intermediary who cares about his reputation. Fundamentalists are rational investors with long horizons who are interested in the dividend stream. Speculators are rational investors who have short horizons and are interested in profiting from short-term price movements or capital gains. Trend-followers are behavioral investors who extrapolate price trends, and, consequently, are late entrants in the market. We show that an informed intermediary (broker) can manipulate demand (consequently stock price) without losing his reputation when there is information asymmetry. We also show that there is a trade-off between broker level competition for reputation and market liquidity. Broker level competition checks manipulation, but it adversely affects market liquidity. View Full-Text
Keywords: stock price manipulation; broker manipulation; broker competition; heterogeneous investors; fundamentalists; speculators; trend-follower stock price manipulation; broker manipulation; broker competition; heterogeneous investors; fundamentalists; speculators; trend-follower
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Siddiqi, H. Stock Price Manipulation: The Role of Intermediaries. Int. J. Financial Stud. 2017, 5, 24.

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Int. J. Financial Stud. EISSN 2227-7072 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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