Stock Price Manipulation: Corporate Actions and the Exploitation of Retail Investors in China

69 Pages Posted: 5 May 2020

See all articles by Sheridan Titman

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Chishen Wei

Singapore Management University - Lee Kong Chian School of Business

Bin Zhao

New York University (NYU) - New York University (NYU), Shanghai

Date Written: April 6, 2020

Abstract

Using account level data from the Shanghai Stock Exchange, we find widespread evidence consistent with insiders manipulating share prices to exploit naïve retail investors. We identify a group of “suspicious” firms that use stock splits—perhaps, along with other misleading activities—to artificially inflate their share prices. Retail investors are strongly attracted to these suspicious splits, providing insiders an opportunity to sell large blocks of shares or use their shares as collateral for loans. A group of large accounts exploits the positive feedback trading behavior of naïve retail investors by accumulating positions before suspicious split announcements and selling in the post-split period.

Keywords: stock market manipulation, stock splits, China

JEL Classification: G14

Suggested Citation

Titman, Sheridan and Wei, Chishen and Zhao, Bin, Stock Price Manipulation: Corporate Actions and the Exploitation of Retail Investors in China (April 6, 2020). Available at SSRN: https://ssrn.com/abstract=3569429 or http://dx.doi.org/10.2139/ssrn.3569429

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chishen Wei (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore
Singapore

Bin Zhao

New York University (NYU) - New York University (NYU), Shanghai ( email )

1555 Century Ave
Shanghai, Shanghai 200122
China

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