Quote-Based Manipulation of Illiquid Benchmarks

15 Pages Posted: 15 Apr 2020

See all articles by Ching Chau

Ching Chau

affiliation not provided to SSRN

Angelo Aspris

University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Sean Foley

Macquarie University

Hamish Malloch

The University of Sydney; Financial Research Network (FIRN)

Date Written: December 3, 2019

Abstract

We document a form of marking the close committed without transacting. Instead, manipulators utilize periods of order-book illiquidity to inflate the benchmark price. We find instances of closing price manipulation are associated with increases in end of day returns and, contrary to findings in the previous literature, observe no subsequent price reversals. Instead, we show these price effects continue in the manipulated direction over extended periods, with average excess returns of over 80% in the six-months following the manipulation. Our results demonstrate that both regulators and exchanges need to be mindful of the pressures of external incentives on benchmark prices.

Keywords: Benchmarks, closing price manipulation, marking the close

JEL Classification: G18, G23

Suggested Citation

Chau, Ching and Aspris, Angelo and Foley, Sean and Malloch, Hamish, Quote-Based Manipulation of Illiquid Benchmarks (December 3, 2019). Available at SSRN: https://ssrn.com/abstract=3560909 or http://dx.doi.org/10.2139/ssrn.3560909

Ching Chau

affiliation not provided to SSRN

Angelo Aspris (Contact Author)

University of Sydney - Discipline of Finance ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Sean Foley

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia
0417702600 (Phone)

Hamish Malloch

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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