Does Regulatory Attention Towards Trading Manipulation Curb Stock Price Volatility?

ABSTRACT We examine whether regulatory attention towards trading manipulation curbs stock price volatility. Exploiting a unique setting in China in which the regulators announced investigations into trading manipulations of selected newly listed firms, we find a significant postinvestigation decline in the price volatility of all newly listed firms. The volatility reduction is stronger for stocks that are more subject to manipulations, that is, stocks with higher uncertainty, lower analyst attention and lower media attention. Furthermore, newly listed firms also experience a reduction in online discussions and trading volume of individual investors who are plausible counterparties of manipulators.