Call Auction Mechanism and Closing Price Manipulation: Evidence from the Hong Kong Stock Exchange
45 Pages Posted: 15 Nov 2019
Date Written: November 7, 2019
The Hong Kong Stock Exchange adopted a closing call auction in 2008 but suspended its operation ten months later due to suspicion of widespread price manipulation. The Exchange relaunched the auction in 2016 with manipulation-deterrence enhancements. We exploit this unique setting by applying a triple-differences methodology to examine the causal effect of a call auction on closing price manipulation. Our results indicate that a call auction mechanism is prone to closing price manipulation. Under this mechanism overnight price reversal is more pronounced on days with excessive trading just before the close and days when the derivative contract expires.
Keywords: Closing Price Manipulation, Call Auction, Overnight Price Reversal, Sniping, CBBC, Price Informativeness
JEL Classification: D44, G14
Suggested Citation: Suggested Citation