Do Hedge Funds Manipulate Stock Prices?

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

Itzhak Ben-David

Ohio State University - Fisher College of Business, Finance Department; National Bureau of Economic Research (NBER)

Francesco A. Franzoni

Università della Svizzera italiana (USI), Lugano; Swiss Finance Institute

Augustin Landier

Toulouse School of Economics

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

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 - Fisher College of Business, Finance Department ( email )

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

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

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

Università della Svizzera italiana (USI), Lugano ( email )

Via G. Buffi 13
Lugano, 6904
Switzerland

Swiss Finance Institute

Switzerland

Augustin Landier

Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Rabih Moussawi

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 1003
Villanova, PA 19085
United States

University of Pennsylvania - The Wharton School ( email )

United States

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