JOURNAL OF ACCOUNTING AND FINANCE
Optimal Noise in Asset-Price Manipulation
Author(s): Yui Law
Citation: Yui Law, (2021) "Optimal Noise in Asset-Price Manipulation" Journal of Accounting and Finance, Vol. 21, Iss. 3, pp. 125-142
Article Type: Research paper
Publisher: North American Business Press
Abstract:
I study the optimal behavior of an insider who can manipulate asset prices by releasing private information to uninformed investors. The previous literature argues that without restrictive assumptions, information-based manipulation is not sustainable in the long run. I show that, by allowing the signal space to be continuous, long-run manipulation can easily exist under general assumptions. If the uninformed investors are boundedly rational, the insider has an even greater ability to manipulate prices.