Volatile cocktail

Guppy said the Disney project and the often-erratic nature of China's stock markets were always going to be a volatile cocktail.

"The patterns have been unusual, but not dramatically out of the ordinary for China trading," he said.

Guppy believes some of the sudden movements in share prices, as highlighted by the share graphs, were classic examples of rumor speculation.

He points to the behavior of Zhonghlu's shares when it rose 10 percent a day for nine consecutive days from Nov 19 2008.

"The chart-1, chart-2 and charts-3 show a clear correlation of the Western idea of 'buy the rumor and sell the news'. There was a fairly standard price and volume (of shares traded) rise taking place. People becoming increasingly aware of the potential of the rumor," he said.

Guppy said the whole saga of the Disney speculation created perfect opportunities for arbitrage, where investors can take opportunities between price differentials between markets.

Time zone follies

News surrounding the Disney project often emerged in the United States, when all but the most financially active were fast asleep in their beds in China.

"You have news released in different time zones, which creates perfect opportunities for arbitrage. Those who got access to the information earlier could act upon it when the market opened in Shanghai. In the modern world, there is no way you can stop these arbitrage opportunities," Guppy said.

Many believe the media itself has played a huge part in adding to the speculation and destabilizing the market through the drawn-out affair.

To give just one example, Shanghai Securities News reported on Aug 8 that the Pudong local district authority had settled major issues surrounding the project with Disney.

This triggered a strong market reaction. The price of companies such as Jielong plunged sharply after consecutive hikes in the previous few days.

This seemingly perverse behavior was following a classic Chinese pattern of how "stock prices hit the ground when rockets are in the sky", not dissimilar from the Western concept of buying on the rumor and selling on the news.

"The supportive news reports were often released at a time when the market had reached its peak," Li Ran, the Beijing investor, said.

"A lot of small investors like myself sensed that possibly some institutional investors were using media organizations to spread rumors so as to misguide us," Li said.

Guppy said it is difficult to establish whether someone was deliberately trying to manipulate the market by planting false leads and making sure they appeared in some influential publication at key moments.

"The off-again, on-again nature of this project adds to rumor-driven price rises. If we say a rumor is deliberately planted, that is a type of market manipulation, but it is very difficult to prove. You see this very often," Guppy said.

All the Disney speculation has brought into question whether Chinese markets need tighter regulation.

Some of the unusual trading patterns seen recently might have led to investigations by the authorities on Wall Street or in London.

Li Jianfeng, an analyst with Shanghai Securities, wonders, however, whether more exacting regulations would have protected smaller investors from the volatility.

"Regulators will and should investigate obvious price manipulation. But it is often hard to stop it in the first place, because investigations often come after the manipulation which has already resulted in losses for investors," he said.