Painting The Tape

Definition

Stock market manipulation, also known as price fixing or wash trading, is a form of market manipulation where participants attempt to influence the price of securities by buying and selling them among themselves. This creates the illusion of high trading activity, with the aim of generating false interest in a particular stock to deceive investors into buying it, thereby driving up the stock price.

Origin

The practice of stock market manipulation dates back to the early development of stock markets. As stock markets formed, manipulative practices emerged alongside them, becoming particularly prevalent in the late 19th and early 20th centuries as stock trading became more widespread.

Categories and Features

Stock market manipulation can be categorized into various types, including but not limited to: false trading, insider trading, and money laundering trades. False trading typically involves creating fake market demand or supply, insider trading uses non-public information for trading, and money laundering trades involve complex networks to obscure the source of funds.

Case Studies

A notable case is the 1990s 'junk bond' scandal, where some investment banks manipulated the market to inflate bond prices, eventually leading to a market crash. Another example is during the 2008 financial crisis, where several large financial institutions were accused of manipulating the market through complex financial instruments, causing extreme market volatility.

Common Issues

Investors often find it challenging to identify stock market manipulation as these activities are usually hidden within complex trading patterns. A common misconception is that all market fluctuations are natural, overlooking the potential for manipulative activities.