Call auction design and closing price manipulation: Evidence from the Hong Kong stock exchange

Seongkyu Gilbert Park, Wing Suen, Kam-Ming Wan*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

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.

Original languageEnglish
Article number100700
Peer-reviewed scientific journalJournal of Financial Markets
Volume58
ISSN1386-4181
DOIs
Publication statusPublished - 01.03.2022
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • Call auction design
  • Closing price manipulation
  • Overnight price reversal
  • CBBC
  • Sniping

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