Natural disasters and market manipulation

Maimuna Akter, Douglas Cumming, Shan Ji

Research output: Contribution to journalArticlepeer-review

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Abstract

Natural disasters exacerbate swings in investor sentiment and information asymmetry. As such, we propose natural disasters enable more frequent and severe market manipulation. We test this proposition using the securities listed in the NYSE and NASDAQ, disaster data from the National Oceanic and Atmospheric Administration, and surveillance industry-provided manipulation data from SMARTS, Inc. The data indicate the frequency and severity of market manipulation increases during disaster periods. Community resilience, hazard mitigation programs, and operational location moderate the effect of natural disasters on manipulation. These effects are not mechanically driven by spikes in volatility in disaster-county months. These effects are more pronounced for certain industries, including agricultural, health, and manufacturing industries. Finally, these findings are robust to alternative proxies of manipulation and various model specifications that include but are not limited to using difference-in-differences analysis.
Original languageEnglish
Article number106883
Number of pages18
JournalJournal of Banking & Finance
Volume153
Early online date16 May 2023
DOIs
Publication statusPublished - 1 Aug 2023

Keywords

  • Market manipulation
  • Natural disasters

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