Is Market Manipulation a Catalyst for Herding Effects_ – Based on Evolutionary Game Theory

Market manipulation and herding effects have become common occurrences that greatly affect the stability of Chinese financial markets. While previous studies suggest that institutional manipulation requires an irrational atmosphere of blind following, little research has explored whether institutional manipulation intentionally induces herding effects among retail investors. This paper examines the impact of market manipulation on herding effects through an evolutionary game theory model that incorporates the behavioral characteristics of institutional and retail investors under information asymmetry. Our analysis shows that institutional investors with superior information who prefer market manipulation strategies can induce risk preference among retail investors to move in the same direction, resulting in a lasting effect. Our research offers important insights into the dynamics of financial markets and can inform policies aimed at reducing risks associated with abnormal fluctuations and promoting market stability