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Rev Fin 1992; 5:503-529
© 1992 the Society for Financial Studies

Article

Stock-price manipulation

F Allen1,z and D Gale2
1 Finance Department, Wharton School, University of Pennsylvania,
z Philadelphia, PA 19104, USA
2 Boston University, USA

Abstract

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 impossible 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.


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