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ABSTRACT
Stock investors have a number of manipulation techniques for personal profit. Pump-dump manipulation is one of the trade-based manipulation techniques that encourages an increase in trading volume that will ultimately increase stock prices. In the previous study, it was found that small capitalized stocks were more likely to be manipulated. This is because small-cap stocks tend to have cheaper share prices. In addition, another study found that pump-dump manipulation led to an increase in stock price volatility. This study used a sample of 149 companies listed on the Indonesia Stock Exchange in the period November 30, 2015, to December 30, 2015. This study found the existence of pump-dump manipulation in 14 different periods. The result of correlation test between trading volume and Cumulative Abnormal Return (CAR) proved positive during the next four trading days (t4). The results of this study also obtained evidence that small capitalized stocks have lower probability rates for pump-dump manipulation. This goes against our proposed hypothesis. While the impact of pump-dump manipulation on stock price volatility does not show significant difference test results. This study is expected to contribute to the study of stock investments in emerging-market exchanges. Capital markets in developing countries certainly have different characteristics with capital markets in developed countries so there needs to be a study of investment strategies in emerging markets
Keywords: Pump-Dump Manipulation, Market Capitalization, Stock Price Volatility, Trading Volume
1.INTRODUCTION
The manipulation of share price, according to Regulation No. 8 of 1995 concerning capital market in Indonesia, is an action by any party, either directly or indirectly with the aim to create a false or misleading picture of trading activity, market condition or stock price in Indonesia Stock Exchange. Allen and Gorton (1992) identify there are three forms of manipulation, namely; manipulation of action, information manipulation and trade manipulation. Manipulation of action is done by changing the value of the company's assets so that the stock price does not match the actual condition of the company. Manipulation of information is manipulation by giving or distributing false information with the aim of raising stock prices. The last type of manipulation is trade-based manipulation. Huang, Chen, and Cheng (2005) explain that trade manipulation occurs when manipulators trade directly in the stock exchange. Because it...