Abstract
Using the data of retail investors' stock holdings, this study examined the effect of corporate misconduct on investor behavior. Our results showed that the number of retail investors investing in fraudulent firms tends to increase throughout the misconduct and during the public announcement. We also found that the increased volatility of stock returns heightens the interest of retail investors in the fraudulent stocks before and during the announcement of corporate misconduct. However, there was no significant change in their number after the announcement. Retail investors did not sell fraudulent stocks that have already lost significant value after the public announcement of corporate misconduct.
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