manipulation,distinct from the model of Allen and Gale (1992)--that does not impose assumptions on information asymmetry or the probability of manipulation.Third,we demonstrate a possibility of trade-based manipulation based on realistic assumptions about behavior that have been well documented empirically.One may view our paper as a companion paper of Allen and Gale.They study the possibility of price manipulation under rational expectations with information asymmetry while we provide a case of market manipulation under behavioral bias and limits to arbitrage but with no fundamental risk or information asymmetry. 2.The Model Economy We consider a discrete-time market in which there exist a speculative asset and a riskfree bond.The riskfree bond yields a zero net return each period of time.There are three classes of investors,a manipulator,arbitrageurs,and behavior-driven traders,who buy and sell the speculative asset following their own rules.The characteristics of these investors are described in detail in the following assumptions. Assumption 1.We consider a discrete-time economy that begins at time t=0,and ends at time t=T (namely,t=0,1,2,...,T).A continuum number of new behavior-driven investors,with measure 1,enter the market at the beginning of each period t.They are price-takers and each of them has a probability of q to buy a share of the speculative asset if the price of the asset at time t>0.P,is greater than the asset price at time t-1.P.If P.<P,each new behavior-driven investor has a probability of q2 to buy a share of the speculative asset. At the beginning of the economy,t=0,the price of the speculative asset (P)is equal to the fundamental value of the asset,and the behavior-driven investors are endowed with q shares of the speculative asset in total.Those investors who own the speculative asset at the beginning8 manipulation, distinct from the model of Allen and Gale (1992)--that does not impose assumptions on information asymmetry or the probability of manipulation. Third, we demonstrate a possibility of trade-based manipulation based on realistic assumptions about behavior that have been well documented empirically. One may view our paper as a companion paper of Allen and Gale. They study the possibility of price manipulation under rational expectations with information asymmetry while we provide a case of market manipulation under behavioral bias and limits to arbitrage but with no fundamental risk or information asymmetry. 2. The Model Economy We consider a discrete-time market in which there exist a speculative asset and a riskfree bond. The riskfree bond yields a zero net return each period of time. There are three classes of investors, a manipulator, arbitrageurs, and behavior-driven traders, who buy and sell the speculative asset following their own rules. The characteristics of these investors are described in detail in the following assumptions. Assumption 1. We consider a discrete-time economy that begins at time t and ends at time = 0, t = T (namely, t T = 0,1,2,..., ). A continuum number of new behavior-driven investors, with measure 1, enter the market at the beginning of each period t. They are price-takers and each of them has a probability of 1 q to buy a share of the speculative asset if the price of the asset at time t>0, P , is greater than the a t sset price at time t-1, P . If t−1 P , each new t ≤ Pt−1 behavior-driven investor has a probability of 2 q to buy a share of the speculative asset. At the beginning of the economy, t = 0, the price of the speculative asset ( P ) is equal to the 0 fundamental value of the asset, and the behavior-driven investors are endowed with 1 q shares of the speculative asset in total. Those investors who own the speculative asset at the beginning