Abstract
In the summer of 2018 the shares of New Concept Energy and Avalon Holdings increased more than 500% and then fell back down without any news or rumours about the companies. Using court documents we reconstruct the trades by an alleged manipulator, we analyze his strategic trading behavior and how the market reacted to his trades. We find that the market on average was not able to identify the alleged manipulator’s trades and that his trading costs were lower than those of the other market participants. Consistent with Allen and Gale (1992) we find that the manipulator exhibits the same behavior as informed investors in Collin-Dufresne and Fos (2015), Kacperczyk and Pagnotta (2018), Garriott and Riordan (2019). We argue that Regulation SHO mandatory settlement deadline easily binds for small-cap stocks, making manipulation in these stocks more likely.
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