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A bear raid is a type of
The practice of bear raid has its roots in the 17th-century
stock market
A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, ...
strategy, where a trader (or group of traders) attempts to force down the price of a stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...
to cover a short position. The name is derived from the common use of
''bear'' or ''bearish'' in the language of market sentiment
Market sentiment, also known as investor attention, is the general prevailing attitude of investors as to anticipated price development in a market. This attitude is the accumulation of a variety of fundamental and technical factors, including ...
to reflect the idea that investors expect downward price movement.
A bear raid can be done by spreading negative rumor
A rumor (American English), or rumour (British English; see spelling differences; derived from Latin:rumorem - noise), is "a tall tale of explanations of events circulating from person to person and pertaining to an object, event, or issue in p ...
s about the target firm, which puts downward pressure on the share price. This is typically considered a form of securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in lo ...
. Alternatively, traders could take on large short positions themselves, manipulating the price with the large volume of selling, making the strategy self-perpetuating.
History
The practice of bear raid has its roots in the 17th-century Dutch Republic
The United Provinces of the Netherlands, also known as the (Seven) United Provinces, officially as the Republic of the Seven United Netherlands ( Dutch: ''Republiek der Zeven Verenigde Nederlanden''), and commonly referred to in historiograph ...
. In 1609, Isaac Le Maire, a sizeable shareholder of the Dutch East India Company
The United East India Company ( nl, Verenigde Oostindische Compagnie, the VOC) was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock ...
(VOC), organized a bear raid on the stock of the company.
See also
*Uptick rule
The uptick rule is a trading restriction that states that short selling a stock is allowed only on an uptick. For the rule to be satisfied, the short must be either at a price above the last traded price of the security, or at the last traded pri ...
* Market manipulation
In economics and finance, market manipulation is a type of market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market; the most blatant of cases involve creating false or misleading appearances ...
References
Stock market Finance fraud Dutch inventions {{finance-stub