Never waste a crisis: Do stock market manipulators exploit geopolitical risks?

Utilizing a closing price manipulation detection model, which identified 11,064 suspected cases, we investigate the impact of geopolitical risks on market manipulation. We find that geopolitical risks increase the probability and frequency of manipulation in geopolitically sensitive stocks. This effect is validated by a quasi-natural experiment, utilizing the misfiring of the Taiwan missile in 2016, through difference-in-differences (DID) estimation. The enhanced information asymmetry serves as a main channel for the effect. The impact of geopolitical risks on manipulation is intensified among firms with lower transparency but reduced by high quality auditing and cross-listing, demonstrating that manipulators target stocks traded in opaque information environments. Additional analysis indicates that management disclosure effectively mitigates the effect of geopolitical risks on market manipulation. Our findings shed light on the crucial role of information transparency in the effectiveness of financial markets and investor protection, especially during periods of heightened geopolitical risk.