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Stock Market Manipulation in the Presence of Fund Flows

Author

Listed:
  • Xiangbo Liu

    (Hanqing Advanced Institute of Economics and Finance and School of Economics, Renmin University of China)

  • Zijun Liu

    (London School of Economics)

  • Zhigang Qiu

    (Hanqing Advanced Institute of Economics and Finance and School of Economics, Renmin University of China)

Abstract

We study the manipulation of stock market prices by fund managers in the presence of potential future fund flows. As investors will make further investment as long as the asset price is not fully revealing, the informed manager has incentives to prevent the asset value to be revealed too early, in order to maximise the size of fund flows. Hence in the early trading round, the informed manager always buys the asset even when it is overpriced based on her private information, and the uninformed manager follows suit. Subsequently, the informed manager trades based her private information, and the uninformed one trades based on a mixed strategy. The investors' decisions to invest arise endogenously within the model.

Suggested Citation

  • Xiangbo Liu & Zijun Liu & Zhigang Qiu, 2013. "Stock Market Manipulation in the Presence of Fund Flows," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 483-491, November.
    • Handle: RePEc:cuf:journl:y:2013:v:14:i:2:liu:liu:qiu
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    References listed on IDEAS

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    Cited by:

    1. Ting Luo & Zhiguo Xiao, 2015. "Selective Disclosure Associated with Institutional Investors: Evidence Based on Chinese Stock Market," Annals of Economics and Finance, Society for AEF, vol. 16(2), pages 515-542, November.
    2. Hongliang Zhang & Betul Arda & Yuechan Lu & Senlin Miao, 2018. "Official Development Assistance and Foreign Direct Investment: An Empirical Investigation of Their Implications for Domestic Capital Formation in Africa," Annals of Economics and Finance, Society for AEF, vol. 19(2), pages 653-681, November.

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    More about this item

    Keywords

    Asymmetric information asset pricing; Stock market manipulation; Delegated portfolio management;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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