Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation

Christian Leuz, Steffen Meyer, Maximilian Muhn, Eugene Soltes, Andreas Hackethal

Publikation: Konferencebidrag uden forlag/tidsskriftPaperForskningpeer review

Resumé

Manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called “pump-and-dump” schemes are well known, little is known about the investors in these frauds. By examining 421 “pump-and-dump” schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6% of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.
OriginalsprogEngelsk
Publikationsdato2017
StatusUdgivet - 2017
BegivenhedEuropean Finance Association - Warsaw, Polen
Varighed: 22. aug. 201825. aug. 2018

Konference

KonferenceEuropean Finance Association
LandPolen
ByWarsaw
Periode22/08/201825/08/2018

Fingeraftryk

Participation
Investors
Market manipulation
Investor protection
Price distortions
Capital markets
Communication
Individual investors
Demographics
Participation rate
Trading behavior
Portfolio composition

Citer dette

Leuz, C., Meyer, S., Muhn, M., Soltes, E., & Hackethal, A. (2017). Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation. Afhandling præsenteret på European Finance Association, Warsaw, Polen.
Leuz, Christian ; Meyer, Steffen ; Muhn, Maximilian ; Soltes, Eugene ; Hackethal, Andreas. / Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation. Afhandling præsenteret på European Finance Association, Warsaw, Polen.
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abstract = "Manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called “pump-and-dump” schemes are well known, little is known about the investors in these frauds. By examining 421 “pump-and-dump” schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6{\%} of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30{\%}. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.",
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Leuz, C, Meyer, S, Muhn, M, Soltes, E & Hackethal, A 2017, 'Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation' Paper fremlagt ved European Finance Association, Warsaw, Polen, 22/08/2018 - 25/08/2018, .

Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation. / Leuz, Christian; Meyer, Steffen; Muhn, Maximilian; Soltes, Eugene; Hackethal, Andreas.

2017. Afhandling præsenteret på European Finance Association, Warsaw, Polen.

Publikation: Konferencebidrag uden forlag/tidsskriftPaperForskningpeer review

TY - CONF

T1 - Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation

AU - Leuz, Christian

AU - Meyer, Steffen

AU - Muhn, Maximilian

AU - Soltes, Eugene

AU - Hackethal, Andreas

PY - 2017

Y1 - 2017

N2 - Manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called “pump-and-dump” schemes are well known, little is known about the investors in these frauds. By examining 421 “pump-and-dump” schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6% of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.

AB - Manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called “pump-and-dump” schemes are well known, little is known about the investors in these frauds. By examining 421 “pump-and-dump” schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6% of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.

KW - Asset allocation

KW - Financial Intermediation

M3 - Paper

ER -

Leuz C, Meyer S, Muhn M, Soltes E, Hackethal A. Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation. 2017. Afhandling præsenteret på European Finance Association, Warsaw, Polen.