Do Hedge Funds Still Manipulate Stock Prices?

29 Pages Posted: 29 Apr 2021

See all articles by Xinyu Cui

Xinyu Cui

University of Manchester - Alliance Manchester Business School

Olga Kolokolova

University of Manchester - Alliance Manchester Business School

Date Written: April 28, 2021

Abstract

We find no evidence that hedge funds manipulate stock prices from 2011 to 2019, while confirming strong stock price manipulation pattern previously documented between 2000 and 2010. Stocks held by hedge funds exhibit positive abnormal returns and then reversals at quarter end in the earlier period; however, there is no relation between hedge fund ownership and end-of-quarter stock returns in the later period. Hedge fund market discipline is related to proactive actions of regulators. End-of-quarter stock price manipulation decreases with the number of the Security and Exchange Commission litigation cases involving hedge funds in that quarter. Investor flows, on the contrary, react positively on last-trading-day of a quarter hedge fund portfolio returns, creating incentives for stock price manipulation by hedge funds.

Keywords: Hedge Funds, Stock Price Manipulation, Investor Flow, Regulations, SEC Litigations

JEL Classification: G11, G14, G23

Suggested Citation

Cui, Xinyu and Kolokolova, Olga, Do Hedge Funds Still Manipulate Stock Prices? (April 28, 2021). Available at SSRN: https://ssrn.com/abstract=3836186 or http://dx.doi.org/10.2139/ssrn.3836186

Xinyu Cui

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Olga Kolokolova (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom
+441613062081 (Phone)

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