What question did this study set out to answer?

The study aims to explore the existence of market manipulation strategies that allow large traders to generate wealth without risk.

September 1, 1992Journal of Financial and Quantitative Analysis416 citations

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Market Manipulation, Bubbles, Corners, and Short Squeezes

RJRobert A. JarrowCornell University

Key Points

The study aims to explore the existence of market manipulation strategies that allow large traders to generate wealth without risk.
Analyzed trading strategies of large traders in a securities market.
Defined large traders as those whose trades impact prices.
Established necessary and sufficient conditions for the existence and nonexistence of market manipulation strategies.
Confirmed that market manipulation strategies can exist under certain price equilibrium hypotheses.
Provided conditions under which these manipulation strategies do not exist.

Abstract

This paper investigates market manipulation trading strategies by large traders in a securities market. A large trader is defined as any investor whose trades change prices. A market manipulation trading strategy is one that generates positive real wealth with no risk. Market manipulation trading strategies are shown to exist under reasonable hypotheses on the equilibrium price process. Sufficient conditions for their nonexistence are also provided.

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Market Manipulation, Bubbles, Corners, and Short Squeezes

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