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| Author: | Khwaja, A.I. Mian, A. |
| Title: | Unchecked intermediaries: price manipulation in an emerging stock market |
| Journal: | Journal of Financial Economics
2005 : OCT, VOL. 78:1, p. 203-241 |
| Index terms: | bubbles emerging markets price policy stock markets Pakistan |
| Language: | eng |
| Abstract: | How costly is the poor governance of market intermediaries? Unique trade level data from the stock market in Pakistan is used and it is found 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 compelling evidence is found 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. |
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