Which concept pertains to the practice of artificially inflating the activity of a stock?

Which concept pertains to the practice of artificially inflating the activity of a stock?

• A. Wash trade
• B. Jitney Services
• C. Coat tail provisions
• D. Lock-up agreement

Answer: (A)

The practice of artificially inflating the activity of a stock is best described by the concept of a wash trade. A wash trade occurs when a trader buys and sells the same security, or its equivalents, simultaneously or within a short timeframe, creating an illusion of increased trading volume and activity in a stock. This manipulation can mislead investors and create a false impression of market interest or liquidity, potentially influencing the price of the stock unjustly.

The other concepts do not relate directly to the act of inflating stock activity in this manner. Jitney services involve a type of brokerage where a broker provides a service to clients by executing trades based on clients' orders without the broker acting as a principal. Coattail provisions refer to clauses that allow shareholders to sell their shares when a significant event occurs, protecting them from dilution. Lock-up agreements typically govern the period during which major shareholders are restricted from selling their shares after an IPO to prevent the stock price from plummeting due to excessive sell pressure. These concepts focus on different regulatory and operational aspects of trading and do not involve manipulating stock market activity directly through buying and selling.