Advanced Search
MyIDEAS: Login to save this paper or follow this series

The $500.00 AAPL close: Manipulation or hedging? A quantitative analysis

Contents:

Author Info

  • Yavni Bar-Yam
  • Marcus A. M. de Aguiar
  • Yaneer Bar-Yam
Registered author(s):

    Abstract

    Why do a market's prices move up or down? Claims about causes are made without actual information, and accepted or dismissed based upon poor or non-existent evidence. Here we investigate the price movements that ended with Apple stock closing at \$500.00 on January 18, 2013. There is a ready explanation for this price movement: market manipulation by those who sold stock options, who stood to directly benefit from this closing price. Indeed, one web commentator predicted this otherwise unlikely event publicly. This explanation was subsequently dismissed by press articles that claim that stock prices end near such round numbers based upon legitimate hedging activity. But how can we know? We show that the accepted model that points to hedging as the driving cause of prices is not quantitatively consistent with the price movement on that day. The price moved upward too quickly over a period in which the hedgers' position would require selling rather than buying. Under these conditions hedgers would have driven the price away from the strike price rather than toward it. We also show that a long published theory of the role of hedging is incomplete mathematically, and that the correct theory results in much weaker price movements. This evidence substantially weakens the case of those who claim hedging as cause of anomalous market price movements. The explanation that market manipulation is responsible for the final close cannot be dismissed based upon unsubstantiated, even invalid, hedging claims. Such proffered explanations shield potential illegal activity from further inquiry even though the claims behind those explanations have not been demonstrated.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/1402.0910
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1402.0910.

    as in new window
    Length:
    Date of creation: Feb 2014
    Date of revision:
    Handle: RePEc:arx:papers:1402.0910

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:1402.0910. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.