Detecting Price Manipulation in the Korean Stock Market: Application to Recent Suspected Cases^*

We propose three criteria, including the permanent return ratio, change in permanent price ratio, and floating share ratio, to detect potential stock price manipulation. The permanent return and price ratios capture persistent price movements driven not by firms’ fundamental values but primarily by non-fundamental, including manipulative, sources. Manipulators’ preferences for information asymmetry favorable to generate manipulative price impacts are captured by the floating share ratio. We apply these criteria to the recent price manipulation-suspected cases in Korea, and find that the criteria can effectively detect the suspected stocks by sorting them into highly manipulation-susceptible groups. The results of the confusion matrix analysis confirm that our suggested criteria perform well in detecting potential price manipulation.