is it true that brokers short stocks to drive investors out and then sell them to their big fund buddies ?

Question

and or buy them back for re-SALE later after a UP-grade......if so what did Martha Stewart DO WRONG

Answer 1

Oh it is possible that some of that sort of thing goes on. In fact I am sure that it does, but if they do it is not so they can sell the to the big fund buddies. It would be so they can profit from the transactions theirselves. Nobody on Wall Street does favors for others unless it means they will profit from it.

However, you are ignoring the efficient market theory, which states that the value of shares are what they are selling for. So if the price of a share of stock becomes a bargain, someone is going to jump in and take advantage and drive the price back up.

There are of course market inefficiencies especially in small and mid cap stocks where information does not get around so well. I expect that most of that action would take place in those shares. If you can stop it, you can take advantage of it yourself.

Answer 2

Well-- Martha supposedly traded based on insider info.

Market makers, specialists, hedge fund guys, regular fund guys etc. can manipulate the market since they're driving so much volume. Certainly does also have something to do with the company as well--- crappy stocks get shorted.