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High levels of turnover in financial markets are consistent with the notion that trading, like gambling, yields direct utility to some agents. The purpose of this paper is to show that the presence of these agents attenuates covariance risk pricing and volatility, and implies a negative relation between volume and future returns. Since psychological literature indicates that the desirability of a gamble arises from the ex ante volatility of the outcome, the authors propose that agents derive greater utility from trading more volatile stocks. These stocks earn lower average returns in equilibrium, although the risk premium on the market portfolio is positive. The authors then consider a dynamic setting where agents’ utility from trading increases when they make positive profits in earlier rounds (e.g. due to an endowment effect). This leads to “bubbles,” i.e. disproportionate jumps in asset returns as a function of past prices, higher volume in up markets relative to down markets, as well as a leverage effect, wherein down markets are followed by higher volatility than up markets.

Analytical.

The presence of gamblers attenuates covariance risk pricing and volatility, and implies a negative relation between volume and future returns. If gamblers prefer more volatile stocks, these stocks earn lower average returns in equilibrium. If agents’ utility from trading increases when they make positive profits in earlier rounds (e.g. to an endowment effect), this leads to higher volume and lower volatility in up markets relative to down markets.

No paper has previously modeled agents who derive direct utility from trading.

We argue that uninformed subscribers to an initial public offering (IPO) of common stocks are exposed to greater ex ante risk of trading against informed traders in the secondary market because the advent of public trading conveys hitherto private information and thereby mitigates adverse selection. The going‐public firm underprices the new issue to compensate uninformed subscribers for this added secondary market adverse selection risk. We test this market liquidity‐based explanation by investigating the ex‐post consequences of ownership structure choice on the initial pricing and the secondary market liquidity of a sample of initial public offerings on the New York Stock Exchange (NYSE). Consistent with our argument, we find that initial underpricing varies directly with the ex post trading costs in the secondary market. Further, initial underpricing is related positively to the concentration of institutional shareholdings and negatively to the proportional equity ownership retained by the founding shareholders. Finally, the secondary market illiquidity of new issues is positively related to institutional ownership concentration and negatively to ownership retention and underwriter reputation. Thus, the evidence based on our NYSE sample supports the view that the entrepreneurs' choice of ownership structure affects both the initial pricing and the subsequent market liquidity of new issues.

We analyze trading activity accompanying equities’ switches from “growth” (low book‐tomarket ratios (BMRs)) to “value” (high BMRs), and vice versa. We find that a large BMR increase, that is a shift from growth to value, is accompanied by a strongly negative small order imbalance (OIB). Large OIB exhibits weaker patterns across stocks that experience large changes in book/market. The evidence indicates that growth‐to‐value shifts are more strongly related to small traders than large ones. The interaction of BMRs with order flows plays a crucial role in return predictability. Specifically, the predictive ability of BMRs for future returns is significantly enhanced for those stocks that have experienced book/market increases as well as high levels of net selling by way of small orders.

When agents first become active investors in financial markets, they are relatively inexperienced. Much of the literature focuses on the incentives of presumably sophisticated informed agents to produce information, and not on the nave agents. However, unsophisticated agents are important aspects of financial markets and worth analyzing further. In this paper, we provide a theoretical perspective that addresses the issue of how many nave traders would one expect in a financial market where policy makers try to educate the nave agents.We show that such policy balances the effects of nave trades on corporate investment and liquidity, as well as the monetary cost of increasing financial sophistication. The optimal proportion of nave agents varies with the value of information, the noise in private signals, and the inherent sensitivity of corporate investment to prices.We also show that the policy tool of encouraging insider trading can deter nave investors and thus improve corporate governance and the efficacy of corporate investment.

The purpose of this paper is to systematically analyze the literature around regulatory compliance and market manipulation in capital markets through the use of bibliometrics and propose future research directions. Under the domain of capital markets, this theme is a niche area of research where greater academic investigations are required. Most of the research is fragmented and limited to a few conventional aspects only. To address this gap, this study engages in a large-scale systematic literature review approach to collect and analyze the research corpus in the post-2000 era.

The big data corpus comprising research articles has been extracted from the scientific Scopus database and analyzed using the VoSviewer application. The literature around the subject has been presented using bibliometrics to give useful insights on the most popular research work and articles, top contributing journals, authors, institutions and countries leading to identification of gaps and potential research areas.

Based on the review, this study concludes that, even in an era of global market integration and disruptive technological advancements, many important aspects of this subject remain significantly underexplored. Over the past two decades, research has lagged behind the evolution of capital market crime and market regulations. Finally, based on the findings, the study suggests important future research directions as well as a few research questions. This includes market manipulation, market regulations and new-age technologies, all of which could be very useful to researchers in this field and generate key inputs for stock market regulators.

The limitation of this research is that it is based on Scopus database so the possibility of omission of some literature cannot be completely ruled out. More advanced machine learning techniques could be applied to decode the finer aspects of the studies undertaken so far.

Increased integration among global markets, fast-paced technological disruptions and complexity of financial crimes in stock markets have put immense pressure on market regulators. As economies and equity markets evolve, good research investigations can aid in a better understanding of market manipulation and regulatory compliance. The proposed research directions will be very useful to researchers in this field as well as generate key inputs for stock market regulators to deal with market misbehavior.

This study has adopted a period-wise broad-based scientific approach to identify some of the most pertinent gaps in the subject and has proposed practical areas of study to strengthen the literature in the said field.

Terrorism, an important component of Political risk as a possible determinant of ADRs (American Depository Receipts) returns have received little attention in academic literature. To address this issue and examine whether political risk is a major determinant of ADR returns of emerging market countries, this paper empirically examines market valuation of Indian ADRs around acts of terrorism. Using a sample of 52 such events in the sample period Jan 2003‐Dec 2003 we empirically analyze returns of Indian ADRs. The results from our study indicate a marginally negative significant effect, failing to indicate that event of terrorist attacks severely affect the Indian ADRs listed on the US stock market. This may be explained by a combined effect of; (a) the optimism of US investors towards emerging markets, and (b) market participants becoming more resilient and making informed choices around the “general” events of terrorism.

The purpose of this paper is to focus on the influence of mood/emotions and religious experience on Islamic stock markets during the Ramadan month.

This study uses stock returns data of two countries – Saudi Arabia and Iran – from January 2008 to September 2014 and the ARMA-GARCH models to study impact of the Ramadan month on the return and volatility of the stock market in these two countries.

The results of this study show some differences in the impact of the Ramadan month on the return and volatility of the stock market in these two countries. While the Ramadan month has a significant positive influence on the mean returns and the volatility of the Saudi market, its influence on the Iranian market is found to be insignificant. Further analysis on the last ten days of the Ramadan month provides a similar result for the Saudi market. However, for the Iranian market, volatility is significantly negatively affected during these last ten days.

Most prior studies have found significant changes in returns during the Ramadan month but a deeper understanding of this stock market anomaly is needed. The results point toward the influence of mood/emotions and religious experience in explaining the existence of the Ramadan anomaly.

This study aims to systematically review the literature on how various factors influence investor sentiment and affect financial markets. This study also sought to present an overview of explored contexts and research foci, identifying gaps in the literature and setting an agenda for future research.

The systematic literature investigation yielded 555 journal articles, with few other exceptional inclusions. The data have been extracted from the two databases, i.e. Scopus and Web of Science. For bibliometric analysis, VOSviewer and Biblioshiny by R have been used. The period of investigation is from 1985 to July 2023.

This systematic literature review helped us identify factors influencing investor sentiment and financial markets. This study has broadly classified these factors into two categories: rational and irrational. Rational factors include – economics and monetary policy, exchange rate, interest rates, inflation, government mandatory regulations, earning announcements, stock-split, dividend decisions, audit quality, environmental, social and governance aspects and ratings. Irrational factors include – behavioural and psychological factors, social media and online talk, news and entertainment, geopolitical and war events, calendar anomalies, environmental, natural disasters, religious events and festivals, irrationality caused due to government/supervisory body regulations, and corporate events. Using these factors, this study has developed an investor sentiment model. In addition, this review identified research trends, methodology, data and techniques used by researchers.

This review comprehensively explains how various factors affect investor sentiment and the stock market using the investor sentiment model. It further proposes an extensive future research agenda. This study has implications for stock market participants.