Death, Destruction, and Manipulation

Abstract

We propose during periods of natural disasters, there is greater scope for the frequency and severity of market manipulation due to distraction and investor misestimations. For the population of US stocks from 2007-2018, we merge intra-day manipulation data from SMARTS, Inc., and CMCRC with National Oceanic and Atmospheric Administration's National Weather Service data. The data indicate that market manipulation is common, and the trading value surrounding the manipulation is pronounced among firms that are headquartered in disaster zones. We show these effects are not mechanically driven by spikes in volatility in disaster county-months. We further examine industry-specific effects, which show more pronounced effects in intuitive ways; for example, crop and property damages enhance manipulation in agricultural sectors, while deaths enhance manipulation in health and manufacturing sectors. These findings are robust to alternative proxies of manipulation and to controls for firms’ information asymmetry and volatility. We also use various model specifications that include but are not limited to using Difference-in-Differences analysis.

Keywords: Market Manipulation, Natural Disasters

JEL Classification: G14, G18, Q54