Media trading groups and short selling manipulation

Robert Jarrow () and Siguang Li

Quantitative Finance, 2023, vol. 23, issue 7-8, 1035-1052

Abstract: This paper models how chatroom traders, forming a coalition via social media platforms, influence the stock price in the presence of large and strategic short sellers. The economic consequences of this dynamic game are studied in an equilibrium framework with strategic trading. Various equilibrium phenomena arise, including price bubbles, short squeezes, forced liquidations, and precautionary savings by the large trader. Media groups discipline the large trader's incentive to short sell, but it can either increase or decrease market allocational efficiency. Additionally, it uniformly improves social welfare under the belief-neutral welfare criterion.

Date: 2023
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DOI: 10.1080/14697688.2023.2222751

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