Unchecked intermediaries: Price manipulation in an emerging stock market

• 成果类型: Article
• 署名作者: Khwaja, AI; Mian, A
• 署名单位: University of Chicago; Harvard University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2004.06.014
• 发表日期: 2005
• 页码: 203-241
• 关键词: emerging markets; price manipulation; bubbles; momentum trading; market governance

摘要

How costly is the poor governance of market intermediaries? Using unique trade level data from the stock market in Pakistan, we find that when brokers trade on their own behalf, they earn annual rates of return that are 50-90 percentage points higher than those earned by outside investors. Neither market timing nor liquidity provision by brokers can explain this profitability differential. Instead we find compelling evidence for a specific trade-based pump and dump price manipulation scheme: When prices are low, colluding brokers trade amongst themselves to artificially raise prices and attract positive-feedback traders. Once prices have risen, the former exit leaving the latter to suffer the ensuing price fall. Conservative estimates suggest these manipulation rents can account for almost a half of total broker earnings. These large rents may explain why market reforms are hard to implement and emerging equity markets often remain marginal with few outsiders investing and little capital raised. (c) 2005 Elsevier B.V. All rights reserved.