Information-based Market Manipulation And Wealth Transfer

Recently,a large number of vicious cases show that information-based market manipulation has become a serious problem in China's capital market.Different from the traditional market manipulation,the information-based market manipulation involves the joint manipulation of listed companies(real economy)and secondary market institutions(capital market).In this strategy,insiders took advantages of their position to manipulate companies' information disclosure by controlling the timing or content of good news.At the same time,they conspired with secondary market institutions to drive up shares and reduce their holdings at high prices in the block trade market.Therefore,information-based market manipulation has a longer duration,a wider range of influence and more likely to misled investors and transferred wealth from the new stockholders to the manipulators.Based on previous theoretical studies,market manipulation cases and big data,we studied the behavioral characteristics,motivations and economic consequences of information-based market manipulation and wealth transfer.We found that there are obvious signs of information manipulation during the period when the insiders of listed companies reduce their holdings.Announce favorable information before the share reduction,such as Large Stock Dividends,Earnings Forecasts and Mergers ? Acquisitions.The motivation is to precisely stimulate the stock price,and the cover manipulator sells high and absorbs low to make huge profits.The consequence is that the manipulator maximizes the effect of wealth transfer,the business order is severely disrupted,and industrial capital accelerates from the real economy.In addition,we also revealed the nature of the above-mentioned behavioral market manipulation from the three dimensions of the fraudulent nature of good information,reverse transactions,and premeditated shareholding reduction.This article provides new evidence for studying how capital market transactions affect the real economy,and has important enlightenment for regulatory authorities to crack down on market manipulation,improve the share reduction system of listed companies,and achieve high-quality development of the capital market.We first analyze the evolution process and essential characteristics of information-based market manipulation based on the institutional background of China's capital market and related theories.Introduce the specific environmental background under which the research problem occurred,including the institutional background related to the manipulation and wealth transfer of China's A-share market,the Expiration of Share Lockups,Daily Price Limits,Large Stock Dividends and Earnings Forecasts guidelines for listed companies.The theoretical foundation mainly includes the theory of market efficiency,market integrity theory,market manipulation theory,and wealth transfer theory.Explore the evolution from traditional market manipulation to information-based market manipulation and the theoretical basis of information-based market manipulation and wealth transfer.The second part of this article mainly uses the above theories to study the issues involved,analyzes typical cases of information-based market manipulation from the two dimensions of companies and market institutions,and conducts statistical analysis of the cases,and extracts the main components of information-based market manipulation.First of all,based on the typical case of information-based market manipulation-the case of J company,it presents the process of information-based market manipulation,including the stock price trend of J company at various stages of manipulation,the positive information released,and the main channel for the manipulator to realize wealth transfer.Secondly,from the perspective of external manipulators,we examine the role of external manipulators and commonly used manipulation methods to reveal the essential characteristics of information-based market manipulation.Finally,through case statistical analysis of 17 listed companies involved in information-based market manipulation cases,it reveals how to identify information-based market manipulation and extract the key elements of information-based market manipulation and wealth transfer.We found that among the 17 target companies,11 of the target companies issued Earnings Forecasts during the manipulation period,14 companies announced Mergers ? Acquisitions during the manipulation period,and 15 companies issued Large Stock Dividends during the manipulation period.In the related announcement,16 companies were involved in the issue of insiders' shareholding reduction.The third part of this article proposes research hypotheses and conducts empirical tests from the three aspects of behavioral characteristics,internal mechanism and economic consequences of information-based market manipulation and wealth transfer.First of all,on the basis of the previous case studies,the use of big data to further investigate the correlation between information-based market manipulation and wealth transfer.We found that there were obvious signs of information manipulation during the period when the company's insiders reduced the shareholding,the main methods included the release of favorable information such as Large Stock Dividends,Earnings Forecasts and Mergers ? Acquisitions before the reduction.Within the 30 days before the reduction of shares by insiders,the number of positive messages released by the company was 81.6% more than that in the 30 days after the reduction.The probability of releasing favorable information such as Large Stock Dividends,Earnings Forecasts is 83.3%,95.5% and 62.7% higher than that after the shareholding reduction.The probability of the company's stock price skyrocketing before the completion of the reduction is abnormally increased,and the probability of the stock price plummeting after the completion of the reduction is abnormally increasing.In addition,this article also found that between 2008 and 2016,A-share listed company insiders reduced their shareholdings in the block trading market to 309.253 billion yuan,while the net profit of these companies during the same period was only 306.861 billion yuan.Secondly,based on the study of behavior characteristics,we further investigate the motivations of information-based market manipulation and wealth transfer,and extract the causal relationship from the correlation relationship.We have found that the motivation for information-based market manipulation is to increase the stock price in the short term,cover the high position of insiders to reduce their holdings and cash out,and maximize the effect of wealth transfer.The instrumental variable method found that information manipulation during the period of shareholding reduction is a planned and premeditated behavior,that is,transactiondriven information rather than information-driven transaction.After the completion of the reduction of the insider's holdings,the probability of low-level holdings of stocks has increased abnormally,indicating that the motive of the insider's reduction of holdings is to make illegal profits.Third,we examine the economic consequences of information-based market manipulation and wealth transfer from the two levels of the capital market and the real economy.We found that after the end of the manipulation,the stock price of listed companies has fallen for a long time,indicating that the good news during the shareholding reduction period is not substantively good,but artificially created false prosperity(that is,fraudulent attributes).More importantly,the performance of these companies will continue to decline in the future,indicating that their normal production and operation activities have been trampled on,and industrial capital has accelerated away from the real economy.The fourth part of this article draws research conclusions and recommendations.We mainly review and summarize the main research issues of this article from the three aspects of behavioral characteristics,internal mechanism and economic consequences of information-based market manipulation and wealth transfer,and severely crack down on market manipulation,improve the governance mechanism of listed companies,and enhance the investment function of the capital market.Provide in-depth and specific policy recommendations in each dimension.Finally,based on the existing research,a possible future research direction is proposed.These four major contents progressed layer by layer,forming a complete analysis method for studying information-based market manipulation and wealth transfer in China's capital market.The possible contributions of this article are as follows: First,this article reveals the new ways that capital market transactions affect the real economy,and finds that insiders can distort the production and operation activities of enterprises in order to reduce their holdings and cash out.Secondly,this article examines the information-based market manipulation behavior and its wealth transfer effect in the process of insider trading,and expands the research in the field of market manipulation.This article is the first empirical literature based on both case analysis and big data research on information-based market manipulation,which makes up for the lack of existing literature that only uses case analysis or theoretical research.Third,the results of this article show that information disclosure arbitrage may be the source of market mispricing.It provides new microscopic evidence for the recent large number of disputes and reasons for the deviation between the virtual economy and the real economy.