Microstructure-based manipulation: Strategic behavior and performance of spoofing traders

► We examine a microstructure-based manipulation, a new kind of manipulation. ► Investors strategically placed spoofing orders which, given the Korea Exchange's (KRX's) order-disclosure rule at the time, created the impression of a substantial order book imbalance, with the intent to manipulate subsequent prices. ► Stocks targeted for manipulation had higher return volatility, lower market capitalization, lower price level, and lower managerial transparency. ► Spoofers achieved substantial extra profits. ► The frequency of spoofing orders decreased drastically after the KRX altered its order-disclosure rule.