Day end returns—stock price manipulation

In this paper, we examine if closing prices are manipulated. Earlier research has shown that closing prices are one of the most used benchmarks against which trader performance is evaluated. If a trader takes a big net position a given day, it is likely that he wants to enhance his performance by ma...

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Bibliographic Details
Published in:Journal of multinational financial management 1999-03, Vol.9 (2), p.95-127
Main Authors: Felixson, Karl, Pelli, Anders
Format: Article
Language:English
Subjects:
Closing price
Data analysis
Financial management
Manipulation
Methodology
Regression analysis
Stock exchange
Stock market returns
Stock prices
Stock returns
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Summary:In this paper, we examine if closing prices are manipulated. Earlier research has shown that closing prices are one of the most used benchmarks against which trader performance is evaluated. If a trader takes a big net position a given day, it is likely that he wants to enhance his performance by manipulating the closing price. We build a simple regression model to test for closing price manipulation in the Finnish stock market. Robustness checks were made for the effect of: (a) size of the net position; (b) differences in returns across firms; (c) different size of net position for different firms, block trades and spread trades. The results before close, for the base case, were in line with our hypothesis. However, the robustness checks showed that block trades and spread trades explained a part, but not all, of our results. The results after close were generally weak, but tilted towards our hypothesis.
ISSN:1042-444X
1873-1309
DOI:10.1016/S1042-444X(98)00052-8