TY  - JOUR
AU  - Allen,Franklin
AU  - Gorton,Gary
TI  - Stock Price Manipulation, Market Microstructure and Asymmetric Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3862
PY  - 1991
Y2  - October 1991
UR  - http://www.nber.org/papers/w3862
L1  - http://www.nber.org/papers/w3862.pdf
N1  - Author contact info:
Franklin Allen
Wharton School
University of Pennsylvania
3620 Locust Walk
Philadelphia, PA 19104
Tel: 215/898-3629
Fax: 215/573-2207
E-Mail: allenf@wharton.upenn.edu

Gary B. Gorton
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
Fax: 203/432-8931
E-Mail: Gary.Gorton@yale.edu
AB  - In recent years, there has been a large literature on how stock exchange specialists set prices when there are investors who know more about the stock than they do. An important assumption in this literature is that there are *liquidity traders* who are equally likely to buy or sell for exogenous reasons. It is plausible that some buyers have cash needs and are forced to sell their stock. However, buyers will usually be able to choose the time at which they trade. It will be optimal for them to minimize the probability of trading with informed investors by choosing an appropriate time to trade and clustering at that time. This asymmetry means that when liquidity buyers are not clustering, purchases are more likely to be by an informed trader than sales so the price movement resulting from a purchase is larger than for a sale. As a result, profitable manipulation by uninformed investors may occur. A model where the specialist takes account of the possibility of manipulation in equilibrium is presented.
ER  -