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Stock-Price Manipulation

Franklin Allen1,2; Douglas Gale3

1 California University of Pennsylvania · 2 University of Pennsylvania · 3 Boston University

Review of Financial Studies 1992

It is generally agreed that speculators can make profits from insider trading or from the release of false information. Both forms of stock-price manipulation have now been made illegal. In this article, we ask whether it is possible to make profits from a different kind of manipulation, in which an uninformed speculator simply buys and sells shares. We show that in a rational expectations framework, where all agents maximize expected utility, it is possible for an uninformed manipulator to make a profit, provided investors attach a positive probability to the manipulator being an informed trader.

DOI
10.1093/rfs/5.3.503
Volume
5 (3)
Pages
503-529
Language
en
Export
BibTeX
Sources
crossref openalex