Heterogeneous investors and deterioration of market integrity: an analysis of market manipulation cases
| DOI | https://doi.org/10.1108/JFC-08-2019-0110 |
| Published date | 28 May 2020 |
| Date | 28 May 2020 |
| Pages | 389-403 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
| Author | Syed Qasim Shah,Izlin Ismail,Aidial Rizal bin Shahrin |
Heterogeneous investors and
deterioration of market integrity:
an analysis of market
manipulation cases
Syed Qasim Shah and Izlin Ismail
Department of Finance and Banking, University of Malaya –City Campus,
Kuala Lumpur, Malaysia, and
Aidial Rizal bin Shahrin
Department of Finance and Banking, Faculty of Business and Accountancy,
University of Malaya, Kuala Lumpur, Malaysia
Abstract
Purpose –The purpose of this study is to empirically test the role of heterogeneous investor’s, i.e.
institutionalinvestors, individuals and insiders in deterioratingmarket integrity.
Design/methodology/approach –The research is conducted by examining the participants of 244
market manipulation casesof East Asian emerging and developed financial markets for the period of 2001–
2016. The empiricalanalysis is conducted using panel logisticregression.
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 individualownership 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
proportionof passive institutional investors are less likely to be manipulatedin 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 institutionalinvestors as active institutional investors and passive institutional investor. The
findings are helpful for regulators in designing policiesto ensure market integrity and to enforce the role of
institutionalinvestors and insiders.
Keywords Market integrity, Market manipulation, Heterogeneous investors
Paper type Research paper
1. Introduction
Stock markets have undergone significant transformation in the last few decades where
institutional and individual investors have had easy access to re-engineered products, new
trading avenues in the form of high frequency trading, and to the markets with less and
time-efficient brokerage cost, hence resulting in high trading volume andmarket efficiency
(Austin, 2014;Shahet al., 2019). The main focus of these transformations of the stockmarket
is to increase market efficiency and trading volume, therefore, these changes are always
welcomed by regulators and market participants since one of the responsibilities of
regulators is to increase market efficiency and market integrity (Aitken et al., 2018;Austin,
2014;Fodor, 2008). But despite these developments in financial markets in the last two
Deterioration
of market
integrity
389
Journalof Financial Crime
Vol.30 No. 2, 2023
pp. 389-403
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-08-2019-0110
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