| We establish a model which is suitable for China stock market (that is without market maker or short sale mechanism)and discuss the possibility and terms for successful market manipulation on the basis of different types of market manipulation and finally we propose the strategies through which harmful market manipulation can be avoided.This article is composed of seven chapters as follows:Chapter One: IntroductionChapter Two: confirmation of the concepts, types, quality, as well as the cause of market manipulation and comparison with the concerning actions. According to the research material, market manipulation consists of three types as below-mentioned: trade-based manipulation ,information-based manipulation and action-based manipulation, which character is one of deceit acts. Additionally, we compare the manipulation with the speculative trade, market-maker system and herd behavior respectively.Chapter Three: Trade-based manipulation. It's a process of buying and selling shares. The share price isn't influenced by false information spread by traders or non-trading action but, to some certain, by informed traders holding dominant shares. In this chapter, model of Chunsheng-Zhou and Jiangping-Mei is briefly introduced and evaluated and the following is the disadvantages of it.First, the model is not concerned with manipulator's private information, which would better accord with China stock market if concerned with. Secondly, the model suggests a pure and simple manipulation based on trade without taking participants 'attitude toward risks or the market frictions such as market corner, short squeeze and so on. Furthermore, we establish a model analyzing how the manipulation over offerings market brings about profits for secondary market, which is seldom done in research in contrast to the research on trade-based manipulation over second-market, by taking Allen and Gale's trade-based manipulation model for example, in which it is suggested that trade-based manipulation is possible in rational expectation.Chapter Four: Action-based manipulation. It refers to the manipulation inwhich manipulator gets profits by taking observable action changing the actual value of assets. Market corner and short squeeze are characteristic and often accompany each other in mature stock market. Market corner in finance is the share held by a certain trader exceeds the actual or the possible supply which means there must be other certain traders holding short sale positions. At the same time, market corner-maker deliberately declines supply or demands high sale price which makes those who are limited by position, allotted time, legal terms, re-buy shares at a much higher price than when it is sold to cover short which consequently make manipulator gains profits and leads to the result of short squeeze. Short sale is illegal which makes neither market corner nor short squeeze exist in China stock market."The share acquired from the listed company is not allowed to transferred within six month after acquisition." which is provided in item 91, in China Stock Law. So did American's 1934 Stock Exchange Law. However Regulation M enforced on March 4,1997 sets no limits to those active stock shares with market value $150million and ADTV $1 million. In this chapter another model is established to analyze whether takeover bids should be abandoned after announce it.Chapter Five: Information-based manipulation. The market price is influenced in this kind dominantly by spreading false information or rumors. Whether the speculation happens before the spread of false information or rumor decides two kinds of information-based manipulation. One is called Speculation before declaration in which speculation occurs before the spread of false information or rumor. In this way, the informed trader has an idea of the rising of the share price in advance. If the public believes what the speculator says, the share price must be made go up. And while the price goes up, the informed-trader sells his share and gains profits.The other is called speculation after declaration. For this kind, false information is spread that result in public false belief however trade is done by informed-trader in accordance to his own private information. Provided informed-trader gets the information in advance that the share price will go up in the latter period instead he spreads the opposite information .If the public believe what the false information says, the price must decline. Then the informed-traders buy shares and gains profits when the market clear.Price going up and down does maximize informed-traders profits on the basis of control over the two types of the information-based manipulation. Reputation among the public certainly influence informed-trader's ability to manipulate. So in this part, connections among trader's reputation, profits, and credit of the transferred information are theoretically analyzed and strengthened with another model.Chapter Six: In this chapter Evolutionary game is first introduced among which Evolutionarily Stable Strategy, Evolutionarily Stable, the choice of the equilibrium path and the dependence of path are explained in detail. Additionally the difference the limited ration between in Evolutionary game and in Finance is showed. And based on the above-mentioned two subjects, the process of market manipulation is clarified by another model.Chapter Seven: Empirical study on market manipulation for A shares of shanghai and shenzhen stock exchange, which happened to high assign and to be transferred into capital stock from 2003 to 2004. we explore index of cumulative average abnormal returns, average abnormal returns, average turnover rate and variance proportional.Chapter Eight: Defensive mechanism. Based on the above analysis and the present situation of China stock market, strategic suggestion against harmful market manipulation are put forward.
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