Informed manipulation.
type: Item
instance of: scholarly article
title: Informed manipulation.
zbMATH Open document ID: 1077.91030
DOI: 10.1016/S0022-0531(03)00101-7
author: Archishman Chakraborty
author: Bilge Yılmaz
published in: Journal of Economic Theory
publication date: 2004-02-03T00:00:00Z
review text: The authors consider some kind of manipulative strategic trading performed by informed insiders. The possibility of manipulative trading is investigated in a Glosten-Milgrom type of the dynamic bid-ask model. The market for one risky and one riskless asset and with one trader is considered. Actually, there are three types of traders, but only one is chosen by nature for any given play of the game. In every period, competitive uninformed market makers post bid and ask prices equal to the expected value, conditional on the observed history of trade in equilibrium, and then the trader trades. In such a frame, it is shown that when the market faces uncertainty about the existence of an informed trader in the market and when the number of trading periods is sufficiently high, every equilibrium involves manipulation by the informed trader. Manipulation endogenously creates liquidity and raises the informed trader long-time profit. The authors claim that their result is robust to the precise specification of the market microstructure. As an example, a three-period simplified model with the equilibrium involving manipulation is presented.
reviewed by: Małgorzata Doman
Mathematics Subject Classification ID: 91B44
Mathematics Subject Classification ID: 91B28
Mathematics Subject Classification ID: 91B26
zbMATH DE Number: 2037175
zbMATH Keywords: insider trading
zbMATH Keywords: information financial market
MaRDI profile type: Publication
cites work: Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility
cites work: Public Disclosure and Dissimulation of Insider Trades
cites work: Continuous Auctions and Insider Trading
cites work: Mathematical methods for economic theory 2
cites work: Simple games of market manipulation
full work available at URL: s0022-0531(03)00101-7
OpenAlex ID: W4233664055
description: scientific article; zbMATH DE number 2037175