Heterogeneous investors and deterioration of market integrity: an analysis of market manipulation cases

Abstract

Purpose

The purpose of this study is to empirically test the role of heterogeneous investor’s, i.e. institutional investors, individuals and insiders in deteriorating market integrity.

Design/methodology/approach

The research is conducted by examining the participants of 244 market manipulation cases of East Asian emerging and developed financial markets for the period of 2001–2016. The empirical analysis is conducted using panel logistic regression.

Findings

The results show that firms with higher institutional ownership are most likely to be manipulated in both markets. Insiders are potential manipulators in developed markets and deteriorate market integrity. In contrast, individual investors behave differently in both markets. In developed markets, firms with high individual ownership are less likely to be manipulated while in emerging markets, firms with individual ownership are more prone to manipulation because of substantial participation by individual investors which invites manipulative practices. Additionally, the authors found that firms with a higher proportion of passive institutional investors are less likely to be manipulated in emerging markets.

Originality/value

This study contributes to the existing literature by identifying the potential manipulators in the financial markets who deteriorate market integrity with the additional focus of subdivision of institutional investors as active institutional investors and passive institutional investor. The findings are helpful for regulators in designing policies to ensure market integrity and to enforce the role of institutional investors and insiders.

Citation

Shah, S.Q., Ismail, I. and Shahrin, A.R.b. (2023), "Heterogeneous investors and deterioration of market integrity: an analysis of market manipulation cases", Journal of Financial Crime, Vol. 30 No. 2, pp. 389-403. https://doi.org/10.1108/JFC-08-2019-0110