Do Hedge Funds Manipulate Stock Prices?
AbstractWe find evidence of significant price manipulation at the stock level by hedge funds on critical reporting dates. Stocks in the top quartile by hedge fund holdings exhibit abnormal returns of 30 basis points in the last day of the month and a reversal of 25 basis points in the following day. Using intraday data, we show that a significant part of the return is earned during the last minutes of the last day of the month, at an increasing rate towards the closing bell. This evidence is consistent with hedge funds’ incentive to inflate their monthly performance by buying stocks that they hold in their portfolios. Higher manipulations occur with funds that have higher incentives to improve their ranking relative to their peers and a lower cost of doing so.
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 628.
Date of creation: Feb 2011
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Publication status: Published in The Journal of Finance, 2013.
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Other versions of this item:
- Ben-David, Itzhak & Franzoni, Francesco & Landier, Augustin & Moussawi, Rabih, 2011. "Do Hedge Funds Manipulate Stock Prices?," Working Paper Series 2011-5, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Ben-David, Itzhak & Franzoni, Francesco & Landier, Augustin & Moussawi, Rabih, 2011. "Do Hedge Funds Manipulate Stock Prices?," TSE Working Papers 11-221, Toulouse School of Economics (TSE).
- NEP-ALL-2011-05-14 (All new papers)
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