Herding behaviour of institutional investors in stock price manipulation

This study examines herding behavior of institutional investors during stock price manipulation in Taiwan, a market characterized by high information asymmetry and retail dominance. While prior research has explored herding and manipulation separately, their interaction across investor types remains underexamined. Using 201 legally prosecuted manipulation cases from 2000 to 2023, classified as trade-based, information-based, and action-based, we compare responses of foreign investors, mutual funds, and securities dealers. Results show securities dealers display the strongest herding during manipulation, amplifying price distortions. Mutual funds follow trade-based schemes but are misled under high information asymmetry, resulting in lower returns. Foreign investors exhibit limited herding and no significant profitability impact. Trade-based manipulation most strongly affects institutional returns, indicating trading-induced distortions influence behavior more than misleading information. These findings underscore the role of information asymmetry and suggest stricter oversight of securities dealers and improved market transparency to mitigate manipulation risks in emerging markets.