Manipulated MarketsAs shown above in the model, when there are...

Manipulated Markets

As shown above in the model, when there are more information seekers[us] in the market and in theabsence of manipulators, information is quickly reflected in the stock price and the market is more efficient.
Yet the presence of more information seekers also makes it possible for manipulators to pool with the informed party and profit from trading with the information seekers. Certainly, the more information seekers trade with manipulators, the more they lose. Hence in a market with many manipulators, information seekers make fewer profits so they enter the market less frequently.
As a result, market manipulation can drive away information seekers and make the market inefficient.
In the extreme, there will be no information seekers and the market is informationally inefficient.
With manipulators present in the market, our model predicts that the price at time 2 does not converge to the true value of the stock to be revealed at time 3.
Therefore a higher probability of manipulation decreases market efficiency.

CCC holders should read from page 21
http://www.afajof.org/pdfs/2004program/UPDF/P306_Asset_Pricing.pdf