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Do Hedge Funds Manipulate Stock Prices?

Author

Listed:
  • Itzhak Ben-David

    (Ohio State University)

  • Francesco A. Franzoni

    (University of Lugano and Swiss Finance Institute)

  • Augustin Landier

    (Toulouse School of Economics)

  • Rabih Moussawi

    (University of Pennsylvania - The Wharton School)

Abstract

We provide evidence suggesting that some hedge funds manipulate stock prices on critical reporting dates. Stocks in the top quartile of hedge fund holdings exhibit abnormal returns of 0.30% on the last day of the quarter and a reversal of 0.25% on the following day. A significant part of the return is earned during the last minutes of trading. Analysis of intraday volume and order imbalance provides further evidence consistent with manipulation. These patterns are stronger for funds that have higher incentives to improve their ranking relative to their peers.

Suggested Citation

  • Itzhak Ben-David & Francesco A. Franzoni & Augustin Landier & Rabih Moussawi, "undated". "Do Hedge Funds Manipulate Stock Prices?," Swiss Finance Institute Research Paper Series 11-53, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1153
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Stivers, Chris & Sun, Licheng, 2013. "Returns and option activity over the option-expiration week for S&P 100 stocks," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4226-4240.
    2. Eid, Nourhan & Maltby, Josephine & Talavera, Oleksandr, 2016. "Income Rounding and Loan Performance in the Peer-to-Peer Market," MPRA Paper 72852, University Library of Munich, Germany.
    3. Jiao, Yawen & Massa, Massimo & Zhang, Hong, 2016. "Short selling meets hedge fund 13F: An anatomy of informed demand," Journal of Financial Economics, Elsevier, vol. 122(3), pages 544-567.
    4. Mila Getmansky & Peter A. Lee & Andrew W. Lo, 2015. "Hedge Funds: A Dynamic Industry In Transition," NBER Working Papers 21449, National Bureau of Economic Research, Inc.
    5. repec:dau:papers:123456789/15218 is not listed on IDEAS
    6. Gao, Meng & Huang, Jiekun, 2016. "Capitalizing on Capitol Hill: Informed trading by hedge fund managers," Journal of Financial Economics, Elsevier, vol. 121(3), pages 521-545.
    7. repec:eee:jbfina:v:82:y:2017:i:c:p:133-150 is not listed on IDEAS
    8. Bernile, Gennaro & Hu, Jianfeng & Tang, Yuehua, 2016. "Can information be locked up? Informed trading ahead of macro-news announcements," Journal of Financial Economics, Elsevier, vol. 121(3), pages 496-520.

    More about this item

    Keywords

    Hedge fund; Manipulation; Stock; Reporting; Manager; Monthly returns; Competition; Inflation; Fraud; Performance reporting; Investors; Returns;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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