Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/187484 
Title: 

Who falls prey to the Wolf of Wall Street? Investor participation in market manipulation

The document was removed on behalf of the author(s)/ the editor(s).

Year of Publication: 
2018
Series/Report no.: 
CFS Working Paper Series No. 609
Publisher: 
Goethe University Frankfurt, Center for Financial Studies (CFS), Frankfurt a. M.
Abstract: 
Manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called "pump-and-dump" schemes are well known, little is known about the investors in these frauds. By examining 421 "pump-and-dump" schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6% of active investors participating in at least one "pump-and-dump" and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.
Subjects: 
Market manipulation
Pump-and-dump schemes
Securities regulation
Fraud
Investor protection
Lottery stocks
Household finance
JEL: 
D14
G11
G18
K42
M48
Document Type: 
Working Paper

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The document was removed on behalf of the author(s)/ the editor(s) on: December 18, 2018


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