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


Franklin Allen


University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)

Lubomir P. Litov


University of Arizona - Department of Finance; University of Pennsylvania - Wharton Financial Institutions Center

Jianping Mei


New York University (NYU) - Department of Finance
December 30, 2004


Abstract:     
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 allowed 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 extremely 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.

Number of Pages in PDF File: 42

Keywords: limits to arbitrage, manipulation, market corner

JEL Classification: G10, G14

working papers series


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Date posted: January 4, 2005  

Suggested Citation

Allen, Franklin, Litov, Lubomir P. and Mei, Jianping, Large Investors, Price Manipulation, and Limits to Arbitrage: An Anatomy of Market Corners (December 30, 2004). Available at SSRN: http://ssrn.com/abstract=604302 or http://dx.doi.org/10.2139/ssrn.604302

Contact Information

Franklin Allen (Contact Author)
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-3629 (Phone)
215-573-2207 (Fax)
HOME PAGE: http://finance.wharton.upenn.edu/~allenf/

European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Lubomir P. Litov
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
University of Pennsylvania - Wharton Financial Institutions Center
2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Jianping Mei
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0354 (Phone)
212-995-4221 (Fax)
Feedback to SSRN (Beta)


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