Trade-Based Stock Price Manipulation and Sample Entropy:

Abstract: Stock price manipulation occurs even though regulators combat it fiercely. Trade-based manipulation is harder to detect and to eradicate than other forms of manipulation. Recently however, there has been an attempt to use advanced mathematics to improve the understanding, detection and measurements of trade-based manipulation. Following this pursuit we apply a family of statistics known as Sample Entropy; a methodology inspired by concepts stemming from the analysis of non-linear dynamic systems. It has been proposed that trade-based manipulation introduce more regularity and less randomness into intraday prices, volumes and times. It has also been proposed that Sample Entropy can detect and quantify such regularity changes. The purpose of this paper is to evaluate the appropriateness of Sample Entropy as a measure and potential indicator of trade-based stock price manipulation. We conclude that Sample Entropy does not have the desired properties to be such an indicator. However, Sample Entropy may not be completely useless. Based on our results a possibility could be to use Sample Entropy to measure the extent to which the manipulator manages to affect the stock.