A Kyle (1985) model with private information di¡usion is used to examine the motivation to spread stock tips. An informed investor with limited investment capacity spreads imprecise rumors to an audience of followers. Followers trade on the advice and move the price. Due to the imprecision of the rumor, the price overshoots with positive probability.This gives the rumormonger the opportunity to trade twice: First when she receives information, then when she knows the price to be overshooting. In equilibrium, rumors are informative and both rumormongers and followers increase their pro¢ts at the expense of uninformed liquidity traders.IT IS DIFFICULT TO DISPUTE that rumors have an important impact on stock prices. Phrases like ''Stock X soared amidst rumors of y'' can be read or heard almost daily in the popular media.Yet an economic theory about the phenomenon is conspicuously absent. This article argues that the sources of rumors are small informed investors who manipulate prices to increase their information-based pro¢ts. Rumormongers can be skillful amateur analysts, investors with access to serendipitous information such as suppliers or clients, or individuals with access to inside information.They have in common that their trading capacity is too small to fully exploit their information by trading in the stock market. A rational expectations model shows that informed investors can increase their pro¢ts by giving informative but imprecise trading advice to a chain of followers to manipulate market prices.In recent years, the Internet has proven a productive incubator of rumors. Investors exchange information in chatrooms, newsgroups, and message boards. Rumors can also spread through word of mouth or newsletters. This article considers those privately communicated messages that contain information and hence induce rational pro¢t-maximizing investors to trade. The presented analysis

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We examine performance in publicly listed U.K. companies over a period that encompasses the issuance of the Cadbury Committee's Code of Best Practice, which calls for the abolition of the combined CEO/COB position. We find that companies splitting the combined CEO/COB position to conform to the Code's requirement did not exhibit any absolute or relative improvement in performance when compared to various peer-group benchmarks. We do not necessarily scoff at mandated board structures, but the evidence suggests that this particular legislature coerced the abandonment of the combined CEO/COB position and appears to be wide of the mark.

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