Black mouth, investor attention, and stock return

Abstract

We investigate “black mouth” in the Chinese stock market, which is a form of manipulation based on disinformation, and examine how investors react to such “credible signals.” Credible signals simply refer to those that easily gain investor trust and influence investor behavior. Black mouth temporarily leads to abnormal investor attention and triggers an abnormal stock return. We show that different types of manipulators send different credible signals with black mouth by security analysts having a larger impact on stock returns. Media attention impacts investor attention more, while media sentiment has a greater impact on stock return. We also find that publicity supervision enhances the role of credible signals and makes investors more distrustful of information disseminated by ordinary manipulators, indicating the need for regulators to strengthen the supervision of black mouth.