Is The Stock Market Manipulated? Does It Matter?

Michael Harris
3 min readNov 17, 2016


The S&P 500 is gaining more than 8.5% on a total return basis year-to-date, yet this performance was achieved amid adverse developments and extreme mean-reversion in price action. These facts could compel someone to abduct the hypothesis that the market is heavily manipulated. The rebuttal is that even if it is, it does not matter.

The chart below shows that Momersion, an indicator that measures the percentage of two consecutive up days in a 252-day period, has plunged recently to an all-time low in SPY since inception.

The extreme low levels in Momersion are an indication of a highly mean-reverting market. And the question is:

How does a highly mean-reverting market manage to deliver 8.52% YTD?

The answer is shown below and it has to do with occasional rallies that deliver returns above two standard deviations.

It is also interesting to notice that the last two such rallies occurred after two highly negative developments, at least according to financial media: Brexit and US election.

Without these occasional V-bottoms when almost no one expecting them, the market would have been in negative territory for the year.

Therefore, the rallies came at unexpected times and helped the market survive its worst mean-reversion state in at least 23 years.

These empirical facts could compel someone to abduct the hypothesis that the market is manipulated, and heavily so.

However, the rebuttal is that even if the market is manipulated, this must be done by actual participation in the game, i.e., in this case buying shares to move prices higher. This entails some risk due to the possibility of an unexpected event and although it is small, it is still finite.

For example, one could hypothesize that large passive funds manipulate the market because they have constant inflows and they do not want spooked investors to start withdrawing funds. By buying where almost everyone expects a correction, they reinforce the idea of an invincible market.

But even if this is true, it is not a recent phenomenon and after all, declaring motives is not a prerequisite for participating in the stock market if rules are obeyed.

Where do you draw the line between actual manipulation and investment strategy?

In the absence of a rigorous answer to the above question, there can be no clear response to claims that the market is manipulated, although it may appear that it is.

If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY



Michael Harris

Ex-fixed income and ex-hedge fund quant, blogger, book author, and developer of DLPAL machine learning software. No investment advice.


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