EconPapers    
Economics at your fingertips  
 

Large Investors, Price Manipulation, and Limits to Arbitrage: An Anatomy of Market Corners

Franklin Allen, Lubomir Litov and Jianping Mei

Review of Finance, 2006, vol. 10, issue 4, 645-693

Abstract: Corners were prevalent in the nineteenth and early twentieth century. We first develop a rational expectations model of corners and show that they can arise as the result of rational behavior. Then, using a novel hand-collected data set, we investigate price and trading behavior around several well-known stock market and commodity corners which occurred between 1863 and 1980. We find strong evidence that large investors and corporate insiders possess market power that allows them to manipulate prices. Manipulation leading to a market corner tends to increase market volatility and has an adverse price impact on other assets. We also find that the presence of large investors makes it risky for would-be short sellers to trade against the mispricing. Therefore, regulators and exchanges need to be concerned about ensuring that corners do not take place since they are accompanied by severe price distortions. Copyright Oxford University Press Science+Business Media, LLC 2006

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (42)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10679-006-9008-5 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:revfin:v:10:y:2006:i:4:p:645-693

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

DOI: 10.1007/s10679-006-9008-5

Access Statistics for this article

Review of Finance is currently edited by Marcin Kacperczyk

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2025-03-19
Handle: RePEc:oup:revfin:v:10:y:2006:i:4:p:645-693