Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, May 19, 2011

A Framework for Analyzing Market Manipulation

Posted by D. Daniel Sokol

Shaun D. Ledgerwood, The Brattle Group, Georgetown University - Public Policy Institute (GPPI) and Paul Carpenter, The Brattle Group provide A Framework for Analyzing Market Manipulation.

ABSTRACT: Market manipulation is a poorly understood phenomenon, due in part to difficulties in applying conventional antitrust tools to explain loss-based opportunism. Because trading to intentionally incur losses violates assumptions concerning the self-interest hypothesis and the need for market power to move prices, traditional tools need revisions to explain manipulative behavior. In this paper, we assist this process by developing a framework to explain manipulation as the intentional loss of money on price-making transactions to benefit the value of related price-taking positions. This framework could simultaneously improve liquidity and compliance by providing definitional and analytic certainty concerning what behavior constitutes manipulation.

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