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Regulating Competition in Stock Markets: Antitrust Measures to Promote Fairness and Transparency through Investor Protection and Crisis Prevention by Michael Wang, Viktoria Dalko, Lawrence Klein

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Chapter 9

Preventing Stock Market Crises (VII)

Principles of Regulating News Reporting That Cultivates Long-Run Manias and Triggers Short-Run Panics

Xin Yan

Lawrence R. Klein

Viktoria Dalko

Ferenc Gyurcsány

Michael H. Wang1

A prolonged mania in the stock market will surely result in a marketwide crisis. To prevent a stock market crisis, it is necessary to curb such a mania. Because certain business news reporting can generate or cogenerate an information monopoly that can be and frequently has been utilized for market manipulation and other interests, and since media firms have financial and informational dependence on large corporations, some business news reporting is found to be upward-biased, particularly in economic boom times. The biased reporting frequentlies triggers short-run mini-bubbles and cultivates long-run mania in the stock market. A set of principles is proposed for securities regulators that are expected to effectively mitigate the generation of information monopolies and prevent such monopoly power.

Panic selling due to some sudden large news events needs to be regulated to protect investors of all categories and prevent marketwide collapse. Both the breaking news reporting and the following panic selling will be regulatory targets in our proposed principles.

All eight principles we recommend are aimed for more objective, fair, and transparent business news and breaking news reporting, thus greatly enhancing investor protection and reducing the potential of ...

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