Regulating Competition in Stock Markets
Antitrust Measures to Promote Fairness and Transparency through Investor Protection and Crisis Prevention
Published on 5. June 2012
Book
Hardback
368 pages
978-1-118-09481-5 (ISBN)
Description
A guide to curbing monopoly power in stock markets
Engaging and informative, Regulating Competition in Stock Markets skillfully analyzes the impact of the recent global financial crisis on health and happiness, and uses this opportunity to put regulatory systems in perspective. Happiness is lost because of emotional and physical health deterioration resulting from the crisis. Therefore, the authors conclude that financial crisis prevention should be the focus of public policy.
This book is the most comprehensive study so far on potential risks to the stock market, especially various forms of market manipulation that lead to mania and eventual crisis. Based on litigation cases from international stock markets, and borrowing multidisciplinary findings in the fields of finance, economics, accounting, media studies, criminology, legal studies, psychology, and medicine, this book is the first to provide thorough micro-level regulatory proposals rooted in financial reality. By focusing on securities trading, they apply antitrust measures to limiting monopolistic power that is used for the manipulation of investors' perception and monopolistic profit. These proposals are quantifiable, adjustable, inexpensive, and can be easily implemented by any securities regulating agency for real-time oversight and daily operations.
* The recommendations found here are intended to improve the fairness and transparency of the financial markets, thereby perfecting the market competition, protecting investors, stabilizing the market, and preventing crises
* Explores how avoiding crises can to contribute to a more scientific, health aware, and civilized economic and social development
* Written by a team of authors who have extensive experience in this dynamic field, including Nobel Laureate Lawrence R. Klein
Since the founding of the first, organized stock exchange in Amsterdam 400 years ago, no systematic economic research results on stock markets have been implemented in stock market regulation around the world. Regulating Competition in Stock Markets aims to fill this void.
Engaging and informative, Regulating Competition in Stock Markets skillfully analyzes the impact of the recent global financial crisis on health and happiness, and uses this opportunity to put regulatory systems in perspective. Happiness is lost because of emotional and physical health deterioration resulting from the crisis. Therefore, the authors conclude that financial crisis prevention should be the focus of public policy.
This book is the most comprehensive study so far on potential risks to the stock market, especially various forms of market manipulation that lead to mania and eventual crisis. Based on litigation cases from international stock markets, and borrowing multidisciplinary findings in the fields of finance, economics, accounting, media studies, criminology, legal studies, psychology, and medicine, this book is the first to provide thorough micro-level regulatory proposals rooted in financial reality. By focusing on securities trading, they apply antitrust measures to limiting monopolistic power that is used for the manipulation of investors' perception and monopolistic profit. These proposals are quantifiable, adjustable, inexpensive, and can be easily implemented by any securities regulating agency for real-time oversight and daily operations.
* The recommendations found here are intended to improve the fairness and transparency of the financial markets, thereby perfecting the market competition, protecting investors, stabilizing the market, and preventing crises
* Explores how avoiding crises can to contribute to a more scientific, health aware, and civilized economic and social development
* Written by a team of authors who have extensive experience in this dynamic field, including Nobel Laureate Lawrence R. Klein
Since the founding of the first, organized stock exchange in Amsterdam 400 years ago, no systematic economic research results on stock markets have been implemented in stock market regulation around the world. Regulating Competition in Stock Markets aims to fill this void.
More details
Persons
LAWRENCE R. KLEIN is Benjamin Franklin Professor Emeritus of Economics at the University of Pennsylvania and a Nobel laureate in Economics. He's published widely and is the intellectual father of Project LINK, a global consortium of national economic forecasting established in 1969 and coordinated in part by the United Nations Department of Economic and Social Affairs. Klein received a PhD in economics from the Massachusetts Institute of Technology.
Viktoria Dalko is a JoAnne Fussa Distinguished Teacher of the Graduate Program in Management, Harvard University Extension School, and a Global Professor of Finance at Hult International Business School in Boston, Dubai, London, San Francisco, and Shanghai. Dalko received a PhD in economics from the University of Pennsylvania.
Michael H. Wang is cofounder, Vice President, and Director of Research of the Boston-based think tank Research Institute of Comprehensive Economics. Wang obtained a PhD in mechanical engineering from the University of Illinois at Urbana-Champaign.
Viktoria Dalko is a JoAnne Fussa Distinguished Teacher of the Graduate Program in Management, Harvard University Extension School, and a Global Professor of Finance at Hult International Business School in Boston, Dubai, London, San Francisco, and Shanghai. Dalko received a PhD in economics from the University of Pennsylvania.
Michael H. Wang is cofounder, Vice President, and Director of Research of the Boston-based think tank Research Institute of Comprehensive Economics. Wang obtained a PhD in mechanical engineering from the University of Illinois at Urbana-Champaign.
Content
Foreword xiii
Introduction xix
Acknowledgments xxvii
PART 1 Happiness, Health, and Longevity during the 2008 Global Financial Crisis
CHAPTER 1 Does the Recent Financial Crisis Impact Health and Happiness? 3
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, Michael H. Wang, and Christine Huang
Concepts of Happiness 4
The History of Modeling Health and Financial Crisis 5
Our Three Objectives 9
Our Financial Crisis-Impact Model 12
Results 16
Financial Crisis as a Major International Traumatic Event 21
Can We Just Wait for the Next Financial Crisis? 24
Notes 25
CHAPTER 2 Profound Unhappiness in the International Recession: The Case of Suicide in Industrialized Countries 27
M. Harvey Brenner
Background 29
Two Concepts of Happiness 30
A Psychological Viewpoint 33
Unhappiness, Hopelessness, and Depression 35
Hypothesis: Happiness as Accomplishment Predicts Happiness as Pleasure 36
Analysis 39
Conclusions 41
PART 2 Imperfect Competition and Antitrust Regulations in the Stock Markets
CHAPTER 3 Preventing Stock Market Crises (I): Regulating Shareholding Concentration 47
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
Is Perfect Competition Possible in the Stock Market? 48
Concentration, Manipulation, and Monopoly 49
Can Stock Markets Still Be Manipulated? 51
Theoretical Literature on Market Manipulation 65
We Choose the Accumulation-Lift-Distribution Scheme to Study 68
Manipulative Objective of Each Stage of the ALD Scheme 70
Are Monopolistic Practices Involved in the ALD Scheme? 73
Antitrust Against ALD Manipulation 74
Existing Approach and Our Proposal to Regulate Market Manipulation 75
Regulatory Proposal: A Generic Recommendation 76
Benefits of Regulating Concentration 77
Concluding Remarks and Future Research 79
Notes 80
CHAPTER 4 Preventing Stock Market Crises (II): Regulating Trade-Based Price-Lifting 83
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
How Is Large Price Impact by Other Investors Induced? 84
Empirical Research on Volume-Based Price Impact 84
The SEBI Prosecution Cases 87
The Manipulation Tactics Used in Price Lifting 89
Anatomy of an Investor's Trades in a Stock during a Trading Day 104
Unified Approach to Surveillance and Regulatory Measures 105
Selling Speed in Distribution and Short Selling 109
Concluding Remarks 110
Notes 110
CHAPTER 5 Preventing Stock Market Crises (III): Regulating Earnings Manipulation 113
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
How Important Is Earnings Information to Investors? 114
Earnings Manipulation Is Problematic 116
How Is Earnings Manipulation Done in Reality? 118
Earnings Manipulation Is Pervasive 121
Earnings Manipulation Is Persistent 124
Auditors Frequently Fail to Stop Earnings Manipulation 126
Proposals to Effectively Regulate Earnings Manipulation 129
Concluding Remarks 130
Notes 131
CHAPTER 6 Preventing Stock Market Crises (IV): Regulating Trading by Corporate Insiders 133
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
What Is the Purpose of Trading by Corporate Insiders? 134
The Relationship between Earnings Manipulation and Trading by Corporate Insiders 137
Trading by Corporate Insiders Is an Important Drive for Earnings Manipulation 138
Insider Trading with Earnings Manipulation Is Not Effectively Regulated 149
Information Monopoly and Information Asymmetry 154
Proposals to Effectively Regulate Trading by Corporate Insiders 155
Discussion of the Four Proposed Measures 161
Conclusion 163
Notes 163
CHAPTER 7 Preventing Stock Market Crises (V): Regulating Information Manipulation by Sell-Side Analysts 165
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
What Is the Actual Role of Sell-Side Analysts? 166
How Is the Value of Sell-Side Analysts' Work Defined? 168
Analysts Can Hardly Attend Fairly to Public Interests 176
Analyst-Generated Information Benefits the Informed 179
Value of Analysts' Recommendation and Forecast to Issuers 181
Value of Analysts'Work to Investment Banks and Brokerage Firms 186
Comparison of Sell-Side Analysts and Corporate Insiders 190
Legal Difficulty in Prosecuting Wrong doing by Sell-Side Analysts 192
Regulatory Proposals 193
Discussion of the Regulatory Proposals 194
Concluding Remarks 196
Notes 196
CHAPTER 8 Preventing Stock Market Crises (VI): Regulating Information-Based Manipulation 199
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
All Types of Market Manipulation Come Down to Perception Manipulation 200
Anatomy of SEC Market Manipulation Litigation Cases (1999 to 2009) 201
Information-Based Manipulation Schemes in Practice 205
Information-Based Manipulation Schemes on the Internet 213
Analysis of Information-Based Manipulation 221
Regulatory Recommendations 225
Discussion of Information Monopoly in Reality 229
Concluding Remarks 232
A Perspective for Future Research 233
Notes 234
CHAPTER 9 Preventing Stock Market Crises (VII): Principles of Regulating New Reporting That Cultivates Long-Run Manias and Triggers Short-Run Panics 237
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
Information Monopoly and Certain Business News Reporting 238
A Prolonged Mania in Stock Buying Leads to a Marketwide Crisis 241
Some Business News Reporting Is Capable of Moving Stock Prices in the Short Run 242 Investors in the Long Run 249
Why Is Business News Reporting Usually Upward-Biased? 256
Proposed Principles to Regulate Relevant Business Journalists and Mass Media 262
Empirical Research on the Impact of Some Breaking News on Stock Markets 265
Trading Halts, Circuit Breakers and Price Limits: Effectiveness and Limitations 269
Regulatory Principles in Case of Breaking News 273
Concluding Remarks 274
Notes 275
Bibliography 277
About the Editors 315
Index 317
Introduction xix
Acknowledgments xxvii
PART 1 Happiness, Health, and Longevity during the 2008 Global Financial Crisis
CHAPTER 1 Does the Recent Financial Crisis Impact Health and Happiness? 3
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, Michael H. Wang, and Christine Huang
Concepts of Happiness 4
The History of Modeling Health and Financial Crisis 5
Our Three Objectives 9
Our Financial Crisis-Impact Model 12
Results 16
Financial Crisis as a Major International Traumatic Event 21
Can We Just Wait for the Next Financial Crisis? 24
Notes 25
CHAPTER 2 Profound Unhappiness in the International Recession: The Case of Suicide in Industrialized Countries 27
M. Harvey Brenner
Background 29
Two Concepts of Happiness 30
A Psychological Viewpoint 33
Unhappiness, Hopelessness, and Depression 35
Hypothesis: Happiness as Accomplishment Predicts Happiness as Pleasure 36
Analysis 39
Conclusions 41
PART 2 Imperfect Competition and Antitrust Regulations in the Stock Markets
CHAPTER 3 Preventing Stock Market Crises (I): Regulating Shareholding Concentration 47
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
Is Perfect Competition Possible in the Stock Market? 48
Concentration, Manipulation, and Monopoly 49
Can Stock Markets Still Be Manipulated? 51
Theoretical Literature on Market Manipulation 65
We Choose the Accumulation-Lift-Distribution Scheme to Study 68
Manipulative Objective of Each Stage of the ALD Scheme 70
Are Monopolistic Practices Involved in the ALD Scheme? 73
Antitrust Against ALD Manipulation 74
Existing Approach and Our Proposal to Regulate Market Manipulation 75
Regulatory Proposal: A Generic Recommendation 76
Benefits of Regulating Concentration 77
Concluding Remarks and Future Research 79
Notes 80
CHAPTER 4 Preventing Stock Market Crises (II): Regulating Trade-Based Price-Lifting 83
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
How Is Large Price Impact by Other Investors Induced? 84
Empirical Research on Volume-Based Price Impact 84
The SEBI Prosecution Cases 87
The Manipulation Tactics Used in Price Lifting 89
Anatomy of an Investor's Trades in a Stock during a Trading Day 104
Unified Approach to Surveillance and Regulatory Measures 105
Selling Speed in Distribution and Short Selling 109
Concluding Remarks 110
Notes 110
CHAPTER 5 Preventing Stock Market Crises (III): Regulating Earnings Manipulation 113
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
How Important Is Earnings Information to Investors? 114
Earnings Manipulation Is Problematic 116
How Is Earnings Manipulation Done in Reality? 118
Earnings Manipulation Is Pervasive 121
Earnings Manipulation Is Persistent 124
Auditors Frequently Fail to Stop Earnings Manipulation 126
Proposals to Effectively Regulate Earnings Manipulation 129
Concluding Remarks 130
Notes 131
CHAPTER 6 Preventing Stock Market Crises (IV): Regulating Trading by Corporate Insiders 133
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
What Is the Purpose of Trading by Corporate Insiders? 134
The Relationship between Earnings Manipulation and Trading by Corporate Insiders 137
Trading by Corporate Insiders Is an Important Drive for Earnings Manipulation 138
Insider Trading with Earnings Manipulation Is Not Effectively Regulated 149
Information Monopoly and Information Asymmetry 154
Proposals to Effectively Regulate Trading by Corporate Insiders 155
Discussion of the Four Proposed Measures 161
Conclusion 163
Notes 163
CHAPTER 7 Preventing Stock Market Crises (V): Regulating Information Manipulation by Sell-Side Analysts 165
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
What Is the Actual Role of Sell-Side Analysts? 166
How Is the Value of Sell-Side Analysts' Work Defined? 168
Analysts Can Hardly Attend Fairly to Public Interests 176
Analyst-Generated Information Benefits the Informed 179
Value of Analysts' Recommendation and Forecast to Issuers 181
Value of Analysts'Work to Investment Banks and Brokerage Firms 186
Comparison of Sell-Side Analysts and Corporate Insiders 190
Legal Difficulty in Prosecuting Wrong doing by Sell-Side Analysts 192
Regulatory Proposals 193
Discussion of the Regulatory Proposals 194
Concluding Remarks 196
Notes 196
CHAPTER 8 Preventing Stock Market Crises (VI): Regulating Information-Based Manipulation 199
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
All Types of Market Manipulation Come Down to Perception Manipulation 200
Anatomy of SEC Market Manipulation Litigation Cases (1999 to 2009) 201
Information-Based Manipulation Schemes in Practice 205
Information-Based Manipulation Schemes on the Internet 213
Analysis of Information-Based Manipulation 221
Regulatory Recommendations 225
Discussion of Information Monopoly in Reality 229
Concluding Remarks 232
A Perspective for Future Research 233
Notes 234
CHAPTER 9 Preventing Stock Market Crises (VII): Principles of Regulating New Reporting That Cultivates Long-Run Manias and Triggers Short-Run Panics 237
Xin Yan, Lawrence R. Klein, Viktoria Dalko, Ferenc Gyurcsany, and Michael H. Wang
Information Monopoly and Certain Business News Reporting 238
A Prolonged Mania in Stock Buying Leads to a Marketwide Crisis 241
Some Business News Reporting Is Capable of Moving Stock Prices in the Short Run 242 Investors in the Long Run 249
Why Is Business News Reporting Usually Upward-Biased? 256
Proposed Principles to Regulate Relevant Business Journalists and Mass Media 262
Empirical Research on the Impact of Some Breaking News on Stock Markets 265
Trading Halts, Circuit Breakers and Price Limits: Effectiveness and Limitations 269
Regulatory Principles in Case of Breaking News 273
Concluding Remarks 274
Notes 275
Bibliography 277
About the Editors 315
Index 317