Can Institutional Investors Restrain Stock Market Manipulation?--Empirical Evidence From an Emerging Market

35 Pages Posted: 30 Jun 2020

See all articles by Jie Liu

Jie Liu

Fujian Agriculture and Forestry University

Chonglin Wu

Fujian Agriculture and Forestry University

Lin Yuan

Peking University - Guanghua School of Management

Date Written: May 31, 2020

Abstract

This paper analyzes the relationship between the proportion of institutional investors’ shareholding and the probability of stock manipulation using 252 cases of manipulation disclosed in public administrative penalty decision of the China Securities Regulatory Commission (CSRC) from 2007 to 2019. The empirical results show that the higher the proportion of institutional investors’ shareholding, the lower the probability of market manipulation. Further analysis shows that the effect is mainly shown in non-shortable stocks. Moreover, controlling for the endogeneity using exogenous policy shocks, the effect of institutional investors on restraining market manipulation still exists. In the end, considering the fact that the cases of market manipulation detected by the CSRC are only a part of the real cases, this paper uses Bivariate Probit model with partial observability and finds that the higher the proportion of institutional investors’ shareholding, the lower the probability of stocks being manipulated and the higher probability of being detected after manipulation.

Keywords: Market manipulation, Institutional investors, Partially observable condition, Market supervision

JEL Classification: G11, G12, G14

Suggested Citation

Liu, Jie and Wu, Chonglin and Yuan, Lin, Can Institutional Investors Restrain Stock Market Manipulation?--Empirical Evidence From an Emerging Market (May 31, 2020). Available at SSRN: https://ssrn.com/abstract=3614890 or http://dx.doi.org/10.2139/ssrn.3614890

Jie Liu

Fujian Agriculture and Forestry University ( email )

Fujian Road
Fuzhou, Cangshan District 350002
China

Chonglin Wu (Contact Author)

Fujian Agriculture and Forestry University ( email )

Fujian Road
Fuzhou, Cangshan District 350002
China

Lin Yuan

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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