or perceived value of the assets.Bagnoli and Lipman (1996)investigate action-based manipulation using take-over bids.In their model,a manipulator acquires stock in a firm and then announces a take-over bid.This leads to a price run up of the firm's stock.The manipulator therefore is able to sell his stock at the higher price.Of course,the bid is dropped eventually The Securities Exchange Act of 1934 established extensive provisions aimed at eliminating manipulation.By regulating information disclosure and restricting and monitoring the trading activities of the directors,managers,and insiders,the Act has successfully made market manipulation more difficult.The types of manipulation that the Act effectively outlawed are mainly information-based and action-based.As a matter of fact,regulating information disclosure of public companies has now become one of the most important tasks of virtually all securities regulation bodies across the world. Trade-based manipulation,however,is much more difficult to eradicate.It occurs when a large trader or a group of traders attempt to manipulate the price of an asset simply by buying and then selling,without taking any publicly observable action to alter the asset value or releasing false information to change the price.This type of manipulation could be of great importance empirically.Hedge funds often buy and then sell substantial blocks of stock,even though they are apparently not interested in taking over the firm.In our opinion,these large buying/selling activities could be taken sometimes for the purpose of trade-based manipulation. Allen and Gale (1992)build a model showing that trade-based manipulation is possible in a rational expectations framework.The Allen and Gale model has three trading dates (indexed by t=1,2,3)and three types of traders,a continuum of identical rational investors,a large informed trader who enters the market at date 1 if and only if he has 77 or perceived value of the assets. Bagnoli and Lipman (1996) investigate action-based manipulation using take-over bids. In their model, a manipulator acquires stock in a firm and then announces a take -over bid. This leads to a price run up of the firm’s stock. The manipulator therefore is able to sell his stock at the higher price. Of course, the bid is dropped eventually. The Securities Exchange Act of 1934 established extensive provisions aimed at eliminating manipulation. By regulating information disclosure and restricting and monitoring the trading activities of the directors, managers, and insiders, the Act has successfully made market manipulation more difficult. The types of manipulation that the Act effectively outlawed are mainly information-based and action-based. As a matter of fact, regulating information disclosure of public companies has now become one of the most important tasks of virtually all securities regulation bodies across the world. Trade-based manipulation, however, is much more difficult to eradicate. It occurs when a large trader or a group of traders attempt to manipulate the price of an asset simply by buying and then selling, without taking any publicly observable action to alter the asset value or releasing false information to change the price. This type of manipulation could be of great importance empirically. Hedge funds often buy and then sell substantial blocks of stock, even though they are apparently not interested in taking over the firm. In our opinion, these large buying/selling activities could be taken sometimes for the purpose of trade-based manipulation. Allen and Gale (1992) build a model showing that trade -based manipulation is possible in a rational expectations framework. The Allen and Gale model has three trading dates (indexed by t =1，2，3) and three types of traders, a continuum of identical rational investors, a large informed trader who enters the market at date 1 if and only if he has