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Do Hedge Funds Manipulate Stock Prices?

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

80 Pages Posted: 17 Feb 2011 Last revised: 16 Sep 2012

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Francesco A. Franzoni

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Augustin Landier

HEC

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania

Date Written: August 31, 2012

Abstract

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.

Keywords: Hedge fund, Manipulation, Stock, Reporting, Manager, Monthly returns, Competition, Inflation, Fraud, Performance reporting, Investors, Returns

JEL Classification: G12, G14, G23, G24

Suggested Citation

Ben-David, Itzhak and Franzoni, Francesco A. and Landier, Augustin and Moussawi, Rabih, Do Hedge Funds Manipulate Stock Prices? (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, Available at SSRN: https://ssrn.com/abstract=1763225 or http://dx.doi.org/10.2139/ssrn.1763225

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Francesco A. Franzoni

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Augustin Landier

HEC ( email )

France
+33630006051 (Phone)

HOME PAGE: http://https://sites.google.com/site/augustinlandier/

Rabih Moussawi

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 2051
Villanova, PA 19085
United States

HOME PAGE: http://www.homepage.villanova.edu/rabih.moussawi

University of Pennsylvania ( email )

3733 Spruce Street
216 Vance Hall
Philadelphia, PA 19104-6301
United States

HOME PAGE: http://www.rabihmoussawi.com/

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