Agent-based modeling of stock market manipulation: an experiment in China

49 Pages Posted: 20 Jun 2024

See all articles by Jiaqi Wen

Jiaqi Wen

University of Technology Sydney (UTS)

Junhuan Zhang

School of Economics and Management, Beihang University

Daniel Houser

Interdisciplinary Center for Economic Science

Date Written: June 05, 2024

Abstract

This study proposes an Agent-based sTOck Manipulation (ATOM) model based on heterogeneous traders and their behaviours to investigate the stock manipulation scenarios. In the ATOM model, the fundamental traders, technical traders, a manipulator and followers make orders based on the respective trading. The manipulator employs fake limit bids during price pumps to drive up stock prices, followed by market asks during dumps to profit from high prices. Followers track large orders in the order book, with varying sensitivity to trading quantities. In the empirical analysis, we use ATOM model to simulate the manipulation behaviours disclosed by China Securities Regulatory. We also investigate three stock manipulation regulations including order size's upper limit, order submission-cancellation interval's lower limit and soft close. The results show that stricter order size and cancellation limits hinder manipulator profits during pump phases, while a soft close extends trading time but increases uncertainty, impeding manipulator gains.

Keywords: Stock Manipulation, Agent-based Modeling, Experimental Finance, Market Microstructure JEL Classification Codes: G4

Suggested Citation

Wen, Jiaqi and Zhang, Junhuan and Houser, Daniel, Agent-based modeling of stock market manipulation: an experiment in China (June 05, 2024). Available at SSRN: https://ssrn.com/abstract=4863876 or http://dx.doi.org/10.2139/ssrn.4863876

Jiaqi Wen

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Junhuan Zhang (Contact Author)

School of Economics and Management, Beihang University ( email )

Xueyuan Road, Haidian District
Beijing, 100191
China

HOME PAGE: http://sites.google.com/site/junhuanzhang

Daniel Houser

Interdisciplinary Center for Economic Science ( email )

5th Floor, Vernon Smith Hall
George Mason University
Arlington, VA 22201
United States
7039934856 (Phone)

HOME PAGE: http://mason.gmu.edu/~dhouser/

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