# Stock Price Manipulation: The Role of Intermediaries

## Abstract

**:**

## 1. Introduction

## 2. The Basic Model

- Stage Zero: Nature chooses the types of investor 1 and investor 2. Only the investor concerned and the broker detect the types. That is, each investor knows his own type, but not the type of the other investor. Broker knows the types of both investors. Superior information is interpreted identically by both investors. That is, if both investors have superior information, they cannot have different types.Brokers have access to client level transaction data and they interact with a large number of investors. This superior position is captured in our model by assuming that the broker observes the types of both investors.
- Stage One: The broker publishes a research report, which forecasts the direction of the market: bullish (I), bearish (N), or neutral (C). Each investor takes this report as a signal about the other investor’s intention. Bullish means that the other investor will be choosing the demand level I, bearish means that the other investor will be choosing the demand level N, and neutral implies the demand level choice of C by the other investor.
- Stage Two: Both investor 1 and investor 2 simultaneously make their demand level choices by choosing between the options I, C, or N.
- Stage Three: Trend-follower decides whether to Enter (E) or Abstain (A).

**Theorem**

**1.**

**Proof.**

**Corollary**

**to**

**Theorem**

**1.**

**Proof.**

## 3. Broker Competition

- Stage Zero: Nature chooses the types of investor 1 and investor 2. As before, an investor can be optimistic or pessimistic if he has superior information. Investors interpret information identically. That is, if both have superior information, they cannot have different types. Only the investor concerned and the two brokers observe the types.
- Stage One: Broker 1 publishes a research reports that forecasts the direction of the market and is either bullish (I), bearish (N), or neutral (C). As before, this report is read by each investor as a signal about the intended demand level choice of the other investor.
- Stage Two: Broker 2 also publishes a report that is similarly read by each investor.
- Stage Three: Both investors simultaneously choose I, C, or N.
- Stage Four: Trend-follower decides whether to Enter or Abstain.

#### 3.1. Severe Competition

#### 3.2. Moderate Competition

#### 3.3. Broker Bias

**Theorem**

**2.**

**Proof.**

**Theorem**

**3.**

**Proof.**

**Theorem**

**4.**

**Proof.**

#### 3.4. How Do Trend-Followers Survive?

## 4. Conclusions

## Conflicts of Interest

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**MDPI and ACS Style**

Siddiqi, H.
Stock Price Manipulation: The Role of Intermediaries. *Int. J. Financial Stud.* **2017**, *5*, 24.
https://doi.org/10.3390/ijfs5040024

**AMA Style**

Siddiqi H.
Stock Price Manipulation: The Role of Intermediaries. *International Journal of Financial Studies*. 2017; 5(4):24.
https://doi.org/10.3390/ijfs5040024

**Chicago/Turabian Style**

Siddiqi, Hammad.
2017. "Stock Price Manipulation: The Role of Intermediaries" *International Journal of Financial Studies* 5, no. 4: 24.
https://doi.org/10.3390/ijfs5040024