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The effect of stock market manipulation on investor behavioral bias

Author

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  • Liu, Jie
  • Zhang, Jingru
  • Chen, Zhenshan

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.

Suggested Citation

  • Liu, Jie & Zhang, Jingru & Chen, Zhenshan, 2025. "The effect of stock market manipulation on investor behavioral bias," Journal of Behavioral and Experimental Finance, Elsevier, vol. 47(C).
    • Handle: RePEc:eee:beexfi:v:47:y:2025:i:c:s2214635025000711
    DOI: 10.1016/j.jbef.2025.101090
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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