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

85 Pages Posted: 6 Dec 2017 Last revised: 22 Apr 2023

See all articles by Christian Leuz

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Steffen Meyer

Aarhus University - Department of Finance; Danish Finance Institute

Maximilian Muhn

University of Chicago - Booth School of Business

Eugene F. Soltes

Harvard University - Business School (HBS)

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

Multiple version iconThere are 4 versions of this paper

Date Written: November 2017

Abstract

Price distortions created by so-called “pump-and-dump” schemes are well known, but relatively little is known about the investors in these frauds. By examining 470 “pump-and-dump” schemes and a large data set of trading records for over 110,000 individual investors from a major German bank, we provide comprehensive evidence on the participation rate, magnitude of the investments, the losses, and the characteristics of the individuals who invest in such schemes. Participation is quite common with nearly 8% of active retail investors participating in at least one “pump-and-dump” losing on average nearly 30%. Next, we identify several distinct types among participating investors, some of which (i.e., speculating day trader) should not be viewed as falling prey to the schemes. Recognizing this heterogeneity is key when designing investor protections because we find investor types respond differently to market manipulation. We also show that portfolio composition and past trading behavior better explain scheme participation than demographics. Lastly, we document longer-lasting effects on participating investors that go beyond the immediate financial losses.

Suggested Citation

Leuz, Christian and Meyer, Steffen and Muhn, Maximilian and Soltes, Eugene F. and Hackethal, Andreas, Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation (November 2017). NBER Working Paper No. w24083, Available at SSRN: https://ssrn.com/abstract=3082266

Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI)

Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Leibniz Institute SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

CESifo Research Network

Poschinger Str. 5
Munich, DE-81679
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Steffen Meyer

Aarhus University - Department of Finance ( email )

Fuglesangs Alle 4
DK-8210 Aarhus
Denmark

Danish Finance Institute ( email )

Maximilian Muhn

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Eugene F. Soltes

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
80
Abstract Views
1,443
Rank
24,060
PlumX Metrics