A part

investors have shown strong self-attribution as they are likely to attribute their investment
failures to external factors. Specifically, only 14.3% of investors admit that their failure is
due to limited investment knowledge. Moreover, researchers find that individual investors
tend to extrapolate past trends. About 63.2% of investors have used technical analysis in
making investment decisions. 51.5% of investors admit that they can be easily influenced
by market information even though they are aware of the unreliability of such information.
Furthermore, the same researchers find that individual investors are prone to the disposition effect. When stock prices rise by 10%, 54.1% of individual investors will sell their shares.
At the same time, only 27% of the investors are willing to sell when their stocks suffer a loss of equal percentage.
Given that individual investors are behavioral biased, price manipulation has always
been a serious problem in Chinese (Canadian?) stock market.
In contrast, most individual investors are poorly informed and
have little understanding of the market fundamentals. They often make their investment
decisions by extrapolating institutional investors’ future behaviors from past prices and
market rumors.

Finally, institutional investors tend to manipulate share prices by creating bullish or
bearish sentiments on a cluster of firms within certain industries, especially during a period
when industry-specific news is released to the public. This is a widely used tactic that paves
the way for the manipulation targets. To implement the tactic, institutional investors
typically hire or collude with some analysts who speak in public that certain industries
will become the next hot or cool concept. Manipulators benefit from the paving-the-way
tactic in two ways. First, since within-industry stocks tend to be more autocorrelated than
cross-industry ones as evidenced by Hypothesis III, stock prices of the pumping (dumping)
targets tend to rise along with the up (down) trend of other stocks in the same industry,
thereby saving the pump and dump costs. Second, the tactic makes the pump and dump
scheme (J and K) much harder to detect by speculators or to prosecute by regulators,
given that all the other stocks in the same industry have gone up and down together.
Thus, the paving-the-way tactic drives a cross-sectional wedge of conditional expected
returns between winning and losing industries. At any given time, the pumping stocks
tend to cluster around the winning industries that are the current hot concept, whereas the
dumping stocks tend to cluster around the losing industries that currently cool down. Thus,
our study on industry momentum essentially reveals this systematic cross-sectional wedge
created by manipulators and chased by speculators, while minimizing the camouflage effect
of artificial noises of individual stocks.