A new wolf in town? Pump-and-Dump manipulation in cryptocurrency markets
Document Type
Article
Publication Title
Review of Finance
Abstract
We investigate the puzzle of widespread participation in cryptocurrency pump-and-dump manipulation schemes. Unlike stock market manipulators, cryptocurrency manipulators openly declare their intentions to pump specific coins, rather than trying to deceive investors. Puzzlingly, people join in despite negative expected returns. In a simple framework, we demonstrate how overconfidence and gambling preferences can explain participation in these schemes. Analyzing a sample of 355 cases in 6 months, we find strong empirical support for both mechanisms. Pumps generate extreme price distortions of 65% on average, abnormal trading volumes in the millions of dollars, and large wealth transfers between participants.
DOI Link
Publication Date
4-8-2022
Publisher
Oxford University Press
Volume
Vol.27
Issue
Iss.3
Recommended Citation
Dhawan, Anirudh and Putniņš, Tālis J, "A new wolf in town? Pump-and-Dump manipulation in cryptocurrency markets" (2022). Faculty Publications. 250.
https://research.iimb.ac.in/fac_pubs/250
