TY - JOUR
T1 - Call auction design and closing price manipulation
T2 - Evidence from the Hong Kong stock exchange
AU - Park, Seongkyu Gilbert
AU - Suen, Wing
AU - Wan, Kam-Ming
N1 - Funding Information:
? We are especially grateful for an anonymous referee, Tarun Chordia (the editor), Carole Comerton-Forde, Mark Grinblatt, and Juhani Linnainmaa for their insightful suggestions. We also thank the Hong Kong Stock Exchange for providing us data on callable bull/bear contracts and Hendrik Bessembinder, Matthias Buehlmaier, Yu-Lun Chen, Steve Ching, Karl Felixson, Y. K. Fu, Mariassunta Giannetti, Vidhan Goyal, Marc Lipson, Adrian C. H. Lei, Dave Mauer, Ghon Rhee, Keunkwan Ryu, Mark Seasholes, Avanidhar Subrahmanyam, Matti Suominen, Jim Upson, T?nn Talsepp, Bonnie Van Ness, Robert Van Ness, Yexiao Xu, Harold Zhang, and seminar participants at the University of Hong Kong, University of Texas at Dallas, Loyola University Chicago, 10th International Conference on Asia-Pacific Financial Markets, 2012 FMA Annual Meeting, 2012 China International Conference in Finance, and 19th and 23rd Conference on the Theories and Practices of Securities and Financial Markets for their comments, and 16th Annual Conference of the AsiaPacific Association of Derivatives (2020). We are thankful for excellent research support from Ernest Ching, Chi-Chen (Fira) Ho, Kai-Jun (Jeremy) Lau, and Yangbo (Darcy) Song. The former title of this paper is ?Sniping to Manipulate Closing Prices in Call Auctions: Evidence from the Hong Kong Stock Exchange.? Kam-Ming Wan would like to dedicate this article to the memory of Professor Harold Demsetz and his pioneering work on market microstructure.
Publisher Copyright:
© 2021 The Authors
PY - 2022/3/1
Y1 - 2022/3/1
N2 - The Hong Kong Stock Exchange adopted a standard closing call auction mechanism in 2008 but suspended its operation ten months later due to suspicion of widespread price manipulation. The Exchange revamped the mechanism with manipulation-deterrence enhancements and relaunched it in 2016. We exploit this unique setting to examine the effect of call auction design on closing price manipulation. Our results indicate that the standard call auction mechanism is vulnerable to closing price manipulation. Under this mechanism, overnight price reversal is more pronounced on days when derivatives expire and on days when large orders were submitted just before the market close.
AB - The Hong Kong Stock Exchange adopted a standard closing call auction mechanism in 2008 but suspended its operation ten months later due to suspicion of widespread price manipulation. The Exchange revamped the mechanism with manipulation-deterrence enhancements and relaunched it in 2016. We exploit this unique setting to examine the effect of call auction design on closing price manipulation. Our results indicate that the standard call auction mechanism is vulnerable to closing price manipulation. Under this mechanism, overnight price reversal is more pronounced on days when derivatives expire and on days when large orders were submitted just before the market close.
KW - 512 Business and Management
KW - Call auction design
KW - Closing price manipulation
KW - Overnight price reversal
KW - CBBC
KW - Sniping
UR - http://www.scopus.com/inward/record.url?scp=85121988435&partnerID=8YFLogxK
UR - https://www.mendeley.com/catalogue/3be183e1-6e9f-329b-9560-b65467c22dcd/
U2 - 10.1016/j.finmar.2021.100700
DO - 10.1016/j.finmar.2021.100700
M3 - Article
AN - SCOPUS:85121988435
SN - 1386-4181
VL - 58
JO - Journal of Financial Markets
JF - Journal of Financial Markets
M1 - 100700
ER -