Stock Market Manipulation in the Presence of Fund Flows

We study the manipulation of stock market prices by fund managers in the presence of potential future fund flows. As investors will make further investment as long as the asset price is not fully revealing, the informed manager has incentives to prevent the asset value to be revealed too early, in order to maximise the size of fund flows. Hence in the early trading round, the informed manager always buys the asset even when it is overpriced based on her private information, and the uninformed manager follows suit. Subsequently, the informed manager trades based her private information, and the uninformed one trades based on a mixed strategy. The investors' decisions to invest arise endogenously within the model.