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Wash trades as a stock market manipulation tool

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  • Imisiker, Serkan
  • Tas, Bedri Kamil Onur

Abstract

This study empirically investigates the profitability of one of the most widely used trade-based manipulation tools, namely wash trading. Using a unique account-level data set for the period 2003–2006 from the Istanbul Stock Exchange (ISE), we generate a measure for the usage of wash trades for each individual account and examine whether wash trading provides excess returns for investors. Our empirical results reveal that significant numbers of investors perform wash trades. In addition, we analyze the optimal percentage of wash trades at which investors maximize excess profits. We find that having up to 10% of total trades as wash trades is the most profitable range, with a 0.5% monthly excess return.

Suggested Citation

  • Imisiker, Serkan & Tas, Bedri Kamil Onur, 2018. "Wash trades as a stock market manipulation tool," Journal of Behavioral and Experimental Finance, Elsevier, vol. 20(C), pages 92-98.
    • Handle: RePEc:eee:beexfi:v:20:y:2018:i:c:p:92-98
    DOI: 10.1016/j.jbef.2018.08.004
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    Cited by:

    1. Lin William Cong & Xi Li & Ke Tang & Yang Yang, 2023. "Crypto Wash Trading," Management Science, INFORMS, vol. 69(11), pages 6427-6454, November.
    2. Xihan Xiong & Zhipeng Wang & Tianxiang Cui & William Knottenbelt & Michael Huth, 2023. "Market Misconduct in Decentralized Finance (DeFi): Analysis, Regulatory Challenges and Policy Implications," Papers 2311.17715, arXiv.org, revised Mar 2024.
    3. Aziz Simsir, Serif & Simsek, Koray D., 2022. "The market impact of private information before corporate Announcements: Evidence from Turkey," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    4. Serneels, Sven, 2023. "Detecting wash trading for nonfungible tokens," Finance Research Letters, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Trade-based manipulation; Wash trades; Market structure;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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