market manipulation

My most recent post invited, in a couple of places, tangents on "market manipulation".  I decided to make that a separate post.

There has been some recent suggestion (mostly by uninformed parties) that corporate stock repurchases constitute "market manipulation", i.e. an attempt to artificially drive up the price of their stock.  There is, in fact, apparently a safe harbor provision in relevant regulations dating back to 1980 that indicate that a company is presumed not to be manipulating the market in its stock provided that its purchases constitute no more than a particular fraction of the trade volume over a particular period of time, which suggests that the idea is not entirely novel.  Relatedly, over the last ten years there have been complaints that countries, especially China, are "manipulating" the market for their currencies, and there are provisions in various trade agreements that apparently forbid that, apparently also without particularly well defining it.

My visceral response to the China accusation in particular, the first time I heard it, was "of course they're manipulating the market; that's their prerogative", with a bit of surprise that it was considered untoward; under certain circumstances intervention in the foreign exchange market seems like the easiest way to implement monetary policy, and I kind of think the US should have tried buying up assets in Iceland, India, Australia, and New Zealand at various times in the last seven years when the currencies of those countries have had moderately high interest rates.  The purpose here is not to create prices that are incorrect; it's to change the underlying value of the currency. The same is true of stock repurchases, at least classically; repurchase of undervalued shares increases the value per share of the remaining shares, increasing their value, with the price rising as a consequence.

This is basically the distinction I make in these contexts; I have some sympathy for rules against trying to drive the price away from the value, whereas influencing the value of assets is often on some level the essential job of the issuer of those assets.  While "value" is even more poorly defined than "price", this motivation is frequently somewhat better defined, if perhaps hard to witness; if a company releases false information, that will affect the price and not the value, whereas a repurchase, especially one that is announced in advance and performed in a reasonably non-disruptive way, is more likely an attempt to influence the value of the asset, which is well within the range of things the company ought to be doing.