Corporate Actions and the Manipulation of Retail Investors in China
65 Pages Posted: 27 Feb 2017 Last revised: 21 Sep 2018
Date Written: September 10, 2018
Although China is now the world’s second largest stock market, in many ways, it is still an emerging market. Relatively unsophisticated retail investors are the largest group of traders and there remain heavy restrictions on short selling. This combination increases the potential for unsavory actors to take corporate actions that artificially inflate stock prices and expropriate retail investors. By analyzing stock return and trading account records, we uncover evidence consistent with stock price manipulation around stocks splits and find that the victims are likely to be retail investors with smaller account holdings. Finally, we report a link between “suspicious” splits and off-exchange insider transactions.
Keywords: China, Retail investors, Stock splits, Manipulation
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