The asymmetric information and price manipulation in stock market

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Abstract:

The interaction between asymmetrically informed traders has been mostly investigated in theoretical frameworks. Not only there are relatively few empirical studies but, if any, the mostly focus on cross-sectional analysis and use very short samples. In this study, we blend theoretic with empirical, and propose a new signalling system of turning points in the economy to examine the extent of volatility of these markets relative to their tranquil periods. The signalling system proposed here is based on the Markov-switching model. Differing from the existing literatures, the study employs three phases and time-varying transition probability, and captures the states of volatility. After examining the causality between high volatility and foreign portfolio investment (FPI) by using moving average and generalized autoregressive conditional heteroskedasticity, the portfolio's profitability of FPI and individual investors in different periods are compared. Finally, the investigation of FPI's leading effect is studied.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840500462038

Affiliations: 1: Department of Finance and Banking, Shih-Chien University, Taipei 104, Taiwan 2: Department of Money, Banking and Finance, Tamkang University, Tamsui, Taiwan

Publication date: April 1, 2007

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