Stock Price Manipulation: Prevalence and Determinants

Abstract

We empirically analyze the prevalence and economic underpinnings of closing price manipulation and its detection. We estimate that approximately one percent of closing prices are manipulated, of which only a small fraction is detected and prosecuted. We find that stocks with high levels of information asymmetry and mid to low levels of liquidity are most likely to be manipulated. A significant proportion of manipulation occurs on month/ quarter-end days. Manipulation on these days is more likely in stocks with high levels of institutional ownership. Government regulatory budget has a strong effect on both manipulation and detection.

Keywords: manipulation, prosecution, closing price, high-closing, detection controlled estimation

JEL Classification: G14