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Monitor or manipulator? The effect of institutional ownership on market manipulation

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  • Liu, Jie
  • Wu, Chonglin
  • Zheng, Wanqing
  • Lin, Gengyan

Abstract

Employing a sample of suspected stock manipulation cases based on intraday data, we find that higher institutional ownership is associated with a lower frequency of market manipulation, supporting the monitoring effect of institutional investors. This effect persists even when we instrument index reconstitutions as an exogenous determinant of institutional ownership. Further, our findings indicate that this effect is driven by reduced information asymmetries resulting from the oversight of institutional investors. Moreover, the empirical evidence suggests that the monitoring effects are more pronounced for long-term institutional investors and concentrated institutional investors.

Suggested Citation

  • Liu, Jie & Wu, Chonglin & Zheng, Wanqing & Lin, Gengyan, 2023. "Monitor or manipulator? The effect of institutional ownership on market manipulation," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323008437
    DOI: 10.1016/j.frl.2023.104471
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    More about this item

    Keywords

    Institutional investor; Market manipulation; Information asymmetry; Monitoring effect;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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