Itzhak Ben-David
Ohio State University - Finance Department, Fisher College of Business
Francesco A. Franzoni
Swiss Finance Institute and University of Lugano
Augustin Landier
Toulouse School of Economics
Rabih Moussawi
University of Pennsylvania - The Wharton School
Charles A. Dice Center Working Paper No. 2011-005
Fisher College of Business Working Paper No. 2011-03-005
Abstract:
We 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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