Indian Journal of Finance

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Stock Manipulation: The Case of the Taiwan Stock Exchange


Affiliations
1 Professor, National Kaohsiung First University of Science and Technology, Taiwan, Province of China
2 Professor, Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, Taiwan, Province of China
3 Student, National Kaohsiung First University of Science and Technology, Taiwan, Province of China

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Using a new hand-collected data set, this study examines stock price manipulation in the Taiwan Stock Exchange. We examine the characteristics of the manipulated stocks and their impacts on market quality. The results show that (1) Manipulated stocks tend to be smaller, (2) stock prices rise throughout the manipulation period, followed by a price reversal, and (3) the average cumulative abnormal return of the manipulated stocks is over 70 percent, which is far higher than that found in the developed markets but similar to that found in emerging markets. In addition, manipulated stocks display increased return continuation and increased volatility of stock return-conditional on high trading activities during the manipulation period. Market depth is also worse during the manipulation period. This suggests that stock manipulation can actually create market inefficiency, lead to both abnormally high trading volume and volatility, worsen market depth, and hence have important impacts on market quality.
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  • Stock Manipulation: The Case of the Taiwan Stock Exchange

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Authors

Yu Chuan Huang
Professor, National Kaohsiung First University of Science and Technology, Taiwan, Province of China
Roger C. Y. Chen
Professor, Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, Taiwan, Province of China
Yao Jen Cheng
Student, National Kaohsiung First University of Science and Technology, Taiwan, Province of China

Abstract


Using a new hand-collected data set, this study examines stock price manipulation in the Taiwan Stock Exchange. We examine the characteristics of the manipulated stocks and their impacts on market quality. The results show that (1) Manipulated stocks tend to be smaller, (2) stock prices rise throughout the manipulation period, followed by a price reversal, and (3) the average cumulative abnormal return of the manipulated stocks is over 70 percent, which is far higher than that found in the developed markets but similar to that found in emerging markets. In addition, manipulated stocks display increased return continuation and increased volatility of stock return-conditional on high trading activities during the manipulation period. Market depth is also worse during the manipulation period. This suggests that stock manipulation can actually create market inefficiency, lead to both abnormally high trading volume and volatility, worsen market depth, and hence have important impacts on market quality.