Stock Market Manipulation
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- Case: Live Door alleged market manipulation
- In Japan, stock splits result in a (dramatic) price increase
- If everything is public, in theory the current owners
are on equal footing with outsiders---outsiders can buy
at the current price, make the same profits
- Transactions cost #1: "terms of trade effect"
- Outsiders are not on the same level with current owners
- Nothing we can do about it
- Transactions cost #2: costs of information
- Market automatically provides price information
- Price information conveys past value information
- correlated with future value, but some traders have
more information!
- Transactions cost #3: trust and supervision
- If you are at an informational disadvantage, you fear
being cheated, and refuse to trade -- market failure
- Rules and supervision
- Importance of consistent accounting standards
- Reduce friction to investment
- Clear, consistent rules reduce transactions costs
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