Stock manipulation in Taiwan and its effects: Pump and dump versus stabilization*~hmac=12b1026942c041302ee263375855299550b2c9f2129fc7404216666497e13353

Review of Quantitative Finance and Accounting

May 2015Volume 44Issue 4pp 791-815

Stock manipulation and its effects: pump and dump versus stabilization

Yu Chuan HuangYao Jen Cheng


This study examines the manipulation of stock prices in Taiwan stock markets. Using a new set of hand-collected data, we examine the characteristics and patterns of manipulated stocks and their effects on the market. Our results show that manipulated firms tend to be small and to have poor corporate governance. Most manipulation cases involve a “pump-and-dump” trading strategy and stabilization operations. Pump-and-dump manipulations lead to high temporary price impacts, increased volatility, large trading volumes, short-term price continuation, and long-term price reversals during the manipulation period. They therefore have an important impact on market efficiency. In stabilization cases, the manipulation has no impact on market performance, except that the price drop and abnormal returns of the post-manipulation period are significantly lower than during the pre-manipulation period. Firm fundamentals are important in deciding the price impacts of stock manipulation. Compared with manipulated firms with positive fundamentals, the manipulation of firms with negative fundamentals has a more detrimental effect on market efficiency.


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