Do Hedge Funds Manipulate Stock Prices?
Ohio State University - Fisher College of Business, Finance Department
Francesco A. Franzoni
University of Lugano; Swiss Finance Institute
Toulouse School of Economics
University of Pennsylvania - The Wharton School
August 31, 2012
Journal of Finance, Forthcoming
Charles A. Dice Center Working Paper No. 2011-005
Fisher College of Business Working Paper No. 2011-03-005
Swiss Finance Institute Research Paper No. 11-53
AFA 2013 San Diego Meetings Paper
We provide evidence suggesting that some hedge funds manipulate stock prices on critical reporting dates. Stocks in the top quartile of hedge fund holdings exhibit abnormal returns of 0.30% on the last day of the quarter and a reversal of 0.25% on the following day. A significant part of the return is earned during the last minutes of trading. Analysis of intraday volume and order imbalance provides further evidence consistent with manipulation. These patterns are stronger for funds that have higher incentives to improve their ranking relative to their peers.
Number of Pages in PDF File: 80
Keywords: Hedge fund, Manipulation, Stock, Reporting, Manager, Monthly returns, Competition, Inflation, Fraud, Performance reporting, Investors, Returns
JEL Classification: G12, G14, G23, G24Accepted Paper Series
Date posted: February 17, 2011 ; Last revised: September 16, 2012
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