The effect of stock market manipulation on investor behavioral bias

Jie Liu, Jingru Zhang and Zhenshan Chen

Journal of Behavioral and Experimental Finance, 2025, vol. 47, issue C

Abstract: Utilizing a closing price manipulation detection model, we investigate the impact of market manipulation on investor behavioral biases. We find that the frequency of manipulation significantly increases investors' extrapolation, lottery preference, limited attention, and anchoring effect. These effects remain robust when we instrument a trading rule change as an exogenous determinant of market manipulation. Furthermore, our findings demonstrate that the increased information asymmetry on firm values and emotional fluctuations caused by market manipulation serve as potential channels to exacerbate investor behavioral biases. Additional analysis indicates that the influence of market manipulation on investor behavioral biases is more pronounced among firms with lower investor maturity, higher arbitrage costs, and in the optimism of investors.

Keywords: Market manipulation; Investor behavioral bias; Information asymmetry; Investor sophistication (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G40 G41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:47:y:2025:i:c:s2214635025000711

DOI: 10.1016/j.jbef.2025.101090

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