Manipulating stock prices based on insider information
Abstract
Purpose
This paper aims to investigate the trading behavior of insider investors before and after information releases, identifying information-based manipulation in the stock market and the characteristics of companies whose stock prices are manipulated.
Design/methodology/approach
This paper employs logit regression method and an event study approach, utilizing hand-collected data from 2010 to 2022, with information categorized into negative and positive types.
Findings
The results show no evidence of insider trading or negative information-based manipulation in both high and low transparency firms. However, in highly transparent companies, the Board of Directors (BOD) avoids direct manipulation by using relatives to evade market supervisors. In low transparency companies, both the BOD and family members (FM) exploit positive information to benefit personally by buying shares before releasing favorable news, causing a sharp stock increase, and selling afterward. Continued buying by the BOD and FM also suggests likely positive news announcements.
Practical implications
The characteristics of information-based manipulation in companies, as provided by this study, help individual investors avoid investing in stocks that are highly susceptible to manipulation.
Originality/value
Empirical research on information-based manipulation is scarce due to limited secondary data. Our study uses transaction data from insider investors in a frontier market with low transparency and high information asymmetry. This enables us to analyze information-based stock price manipulation. We identify manipulation by comparing insiders' trading behavior with their market information releases, resulting in stock price fluctuations greater than 5%.
Keywords
Acknowledgements
Funding: This research is funded by Ho Chi Minh University of Banking.
Authors’ contributions: The author confirms sole responsibility for the following: study conception and design, data collection, analysis and interpretation of results, and manuscript preparation
Availability of data and materials: The datasets used for this study are not publicly available as they are collected at high cost but are available from the corresponding author on reasonable request.
Competing interests: The authors declare that they have no competing interests.
Citation
Thu Quang, L. (2024), "Manipulating stock prices based on insider information", Journal of Financial Crime, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFC-07-2024-0200
Publisher
:Emerald Publishing Limited
Copyright © 2024, Emerald Publishing Limited