A new method of measuring stock market manipulation through structural equation modeling (SEM)

Maruf Rahman Maxim, Abu Sadat Muhammad Ashif

    Research output: Contribution to journalArticleResearchpeer-review

    Abstract

    This paper proposes a new model of measuring a latent variable, stock market manipulation. The model bears close resemblance with the literature on economic well-being. It interprets the manipulation of a stock as a latent variable, in the form of a multiple indicators and multiple causes (MIMIC) model. This approach exploits systematic relations between various indicators of manipulation and between manipulation and multiple causes, which allows it to identify the determinants of manipulation and an index of manipulation simultaneously. The main reason of stock market manipulation comes from the fact that information availability is not universally equal. The manipulation is thus critically linked to the creation, arrival and dissemination of information or rumors/mis-information. Thus, the immediate impact of manipulation is on the time profile of returns, or excess returns, from an asset and the excess volatility of returns in excess of the volatility explained by the fundamentals. In this basic setup, the model used these two variables as the indicators of stock market manipulation. The main intuition of the MIMIC approach is that some variables, or statistics, related to peace are indicators of manipulation, while others signify effects or outputs of causal factors, or inputs, of manipulation. In other words, distinction can be made between causes of manipulation and indicators of manipulation. The causal factors used in this model are classified into five different domains namely pure economic factors as determinants of manipulation, labor market conditions, international factors, quality of governance factors and systematic risk factors.

    Original languageEnglish
    Pages (from-to)54-61
    Number of pages8
    JournalInvestment Management and Financial Innovations
    Volume14
    Issue number3
    DOIs
    Publication statusPublished - 2017

    Fingerprint

    Market manipulation
    Stock market
    Manipulation
    Structural equation modeling
    Factors
    Latent variables
    Rumor
    Peace
    Systematic risk
    Risk factors
    Statistics
    Intuition
    Market conditions
    Labour market
    Governance
    Economic well-being
    Excess volatility
    International factors
    Dissemination
    Excess returns

    Cite this

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    abstract = "This paper proposes a new model of measuring a latent variable, stock market manipulation. The model bears close resemblance with the literature on economic well-being. It interprets the manipulation of a stock as a latent variable, in the form of a multiple indicators and multiple causes (MIMIC) model. This approach exploits systematic relations between various indicators of manipulation and between manipulation and multiple causes, which allows it to identify the determinants of manipulation and an index of manipulation simultaneously. The main reason of stock market manipulation comes from the fact that information availability is not universally equal. The manipulation is thus critically linked to the creation, arrival and dissemination of information or rumors/mis-information. Thus, the immediate impact of manipulation is on the time profile of returns, or excess returns, from an asset and the excess volatility of returns in excess of the volatility explained by the fundamentals. In this basic setup, the model used these two variables as the indicators of stock market manipulation. The main intuition of the MIMIC approach is that some variables, or statistics, related to peace are indicators of manipulation, while others signify effects or outputs of causal factors, or inputs, of manipulation. In other words, distinction can be made between causes of manipulation and indicators of manipulation. The causal factors used in this model are classified into five different domains namely pure economic factors as determinants of manipulation, labor market conditions, international factors, quality of governance factors and systematic risk factors.",
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    A new method of measuring stock market manipulation through structural equation modeling (SEM). / Maxim, Maruf Rahman; Ashif, Abu Sadat Muhammad.

    In: Investment Management and Financial Innovations, Vol. 14, No. 3, 2017, p. 54-61.

    Research output: Contribution to journalArticleResearchpeer-review

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