Costless Closing Price Manipulation
30 Pages Posted: 29 Aug 2012 Last revised: 10 Dec 2014
Date Written: August 27, 2012
Using 123 prosecuted cases of closing price manipulation from the Hong Kong Stock Exchange, we present the first evidence of quote-based manipulation, whereby manipulators inflate closing prices solely using quotes. Quote-based manipulation increases closing prices, bid returns, and order frequencies immediately prior to market close. In contrast to previous studies, illiquid stocks are found to be most susceptible. The manipulation appears to deceive investors, with gradual price increases observed subsequent to the manipulation, allowing manipulators to earn profits. Potential manipulations continue to be observed, suggesting illiquid stocks would benefit from a non-continuous call auction mechanism, as used in many European markets.
Keywords: manipulation, closing price, marking the close, regulation, prosecution, spoofing, painting the tape, high closing
JEL Classification: G14, G18
Suggested Citation: Suggested Citation