Call Auction Mechanism and Closing Price Manipulation: Evidence from the Hong Kong Stock Exchange

47 Pages Posted: 15 Nov 2019 Last revised: 2 Nov 2020

See all articles by Seongkyu Gilbert Park

Seongkyu Gilbert Park

Hong Kong Polytechnic University

Wing Suen

The University of Hong Kong - School of Economics and Finance

Kam-Ming Wan

Hanken School of Economics

Date Written: January 9, 2020

Abstract

The Hong Kong Stock Exchange (HKEx) 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 (DDD) methodology to examine the causal effect of call auction design on closing price manipulation. Our results indicate that a plain-vanilla call auction mechanism is prone to closing price manipulation. Under this mechanism overnight price reversal is more pronounced on days when derivatives expire and on days with large orders submitted just before the market close.

Keywords: Closing Price Manipulation, Call Auction, Overnight Price Reversal, Sniping, CBBC, Price Informativeness

JEL Classification: D44, G14

Suggested Citation

Park, Seongkyu and Suen, Wing C. and Wan, Kam-Ming, Call Auction Mechanism and Closing Price Manipulation: Evidence from the Hong Kong Stock Exchange (January 9, 2020). Available at SSRN: https://ssrn.com/abstract=3482351 or http://dx.doi.org/10.2139/ssrn.3482351

Seongkyu Park

Hong Kong Polytechnic University ( email )

M850, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
+852 2766 4073 (Phone)

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

Wing C. Suen

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
852 2859 1052 (Phone)
852 2548 1152 (Fax)

Kam-Ming Wan (Contact Author)

Hanken School of Economics ( email )

PB 287
Vaasa, Vaasa 65101
Finland

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