Inconspicuousness and obfuscation: how large shareholders dynamically manipulate output and information for trading purposes

Taub, B. (2018) Inconspicuousness and obfuscation: how large shareholders dynamically manipulate output and information for trading purposes. Annals of Finance, 14(4), pp. 429-464. (doi: 10.1007/s10436-018-0334-3)

Abstract

I model a large shareholder who can affect firm fundamentals. I demonstrate that the large shareholder amplifies the component of his private information that is unforecastable by uninformed traders and thus alters the fundamental value of the firm to facilitate his trading profits: he obfuscates. I then construct a continuous time dynamic version of the model using Fourier transform methods. In the dynamic model, the large shareholder does not just simply amplify the unforecastable part of the fundamental: he also alters its stochastic structure. The model thus marries market microstructure with real resource allocation. There are two consequences: (i) the large shareholder induces the fundamental value of the firm to more closely mimic the noise traders, and (ii) market liquidity is reduced.

• Item Type: Articles
• Additional Information: The author acknowledges financial support from the Academic Excellence Project 5-100 of the Russian Government.
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Taub, Professor Bart
• Authors: Taub, B.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Annals of Finance
• Publisher: Springer
• ISSN: 1614-2446
• ISSN (Online): 1614-2454
• Published Online: 23 August 2018
• Copyright Holders: Copyright © 2018 The Authors
• First Published: First published in Annals of Finance 14:429
• Publisher Policy: Reproduced under a Creative Commons License