Line of Inquiry: Christian Leuz on pump-and-dump schemes

Not everyone who invests in pump-and-dumps is duped into doing it.

Apr 18, 2018

Sections Finance Video

The mechanism of pump-and-dump fraud is reasonably uncomplicated—artificially ginning up demand for a stock to raise the price before unloading a large quantity of it—but some of the most fundamental questions about such schemes have gone unanswered in research, making it more difficult for regulators to effectively protect investors. A group of researchers including Chicago Booth's Christian Leuz merged investor data with information on known pump-and-dumps to identify who participates in such fraud, and why. They find that not everyone who invests in pump-and-dumps is duped into doing it.