The Impact of Stock Market Manipulation: An empirical study of Nasdaq Stockholm Stock Exchange during 2018-2023

Sammanfattning: Despite widespread concern about market manipulation, there is a general lack of empirical evidence in the literature to support this claim. In particular, market manipulation has not been thoroughly investigated in advanced stock markets. To fill this gap, this study is empirically examining the impact of stock market manipulation on market quality on the Nasdaq Stockholm stock exchange. The objective is to study whether manipulation distorts the market, both during and after the manipulation. The empirical study uses 31 prosecuted manipulation cases between 2018 and 2023 and discovers several effects of manipulation that align with market microstructure theory. The study finds the bid-ask spread widened in response to manipulation, which could cause rational investors to exit the market to avoid trading with a manipulator. These findings suggest that market manipulation is harmful to information-seeking investors, who typically maintain markets efficient. Moreover, the study finds that manipulators can execute large, profitable trades, challenging the theory that trade size serves as a proxy for information asymmetry. The study also shows that the illiquidity ratio is not significantly affected by market manipulation. The findings are showing that manipulation on the Stockholm stock exchange is exposed a significant level of inefficiency, making it challenging to maintain fair pricing. The results also support earlier studies that stocks with low liquidity and volume are more prone to manipulation.