Media Trading Groups and Short Selling Manipulation

52 Pages Posted: 15 Mar 2021 Last revised: 26 Jun 2023

See all articles by Robert Jarrow

Robert Jarrow

Cornell SC Johnson College of Business

Siguang Li

Hong Kong University of Science and Technology, Guangzhou Campus, Society Hub

Date Written: March 1, 2021

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 a micro-founded quasi-competitive equilibrium framework, which is new to the literature. 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 efficiency. Additionally, it uniformly improves social welfare under the belief-neutral welfare criterion.

Keywords: Meme Stocks; Market Manipulation; Media Trading Groups; Allocational Efficiency; Belief-neutral Efficiency

JEL Classification: G12, G13, G14, G18.

Suggested Citation

Jarrow, Robert and Li, Siguang, Media Trading Groups and Short Selling Manipulation (March 1, 2021). Available at SSRN: https://ssrn.com/abstract=3804130 or http://dx.doi.org/10.2139/ssrn.3804130

Robert Jarrow

Cornell SC Johnson College of Business

Ithaca, NY 14850
United States

Siguang Li (Contact Author)

Hong Kong University of Science and Technology, Guangzhou Campus, Society Hub ( email )

Room 508, Building W1, HKUST (Guangzhou campus)
Guangzhou, Guandong 510000
China

HOME PAGE: http://www.siguangli.com

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