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Does Random Auction Ending Curb Stock Price Manipulation?

Author

Listed:
  • Yiping Lin

    (School of Banking and Finance, University of New South Wales, Australia)

  • David Michayluk

    (Finance Department, UTS Business School, University of Technology Sydney, Australia)

  • Mi Zou

    (School of Economics and Management, Shandong Jiaotong University, China)

Abstract

This paper examines the effect on stock market efficiency and potential market manipulation of introducing a random ending time for the call auctions that start and end continuous trading on three equity markets. We find that the probability of a price dislocation at the end of the auction declines, indicating a lower risk of market manipulation. In addition, the variance ratio and market-adjusted return volatility measures decrease, suggesting a more efficient and less volatile price discovery process. We confirm a behavioral change in order submissions by observing the timing of order entry, amendments, and deletions on one of the exchanges for which we have access to order data. Overall, our results indicate that adding a random auction ending time can reduce the risk of stock market manipulation and improve price efficiency.

Suggested Citation

  • Yiping Lin & David Michayluk & Mi Zou, 2023. "Does Random Auction Ending Curb Stock Price Manipulation?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 13(04), pages 1-33, December.
    • Handle: RePEc:wsi:qjfxxx:v:13:y:2023:i:04:n:s2010139224500010
    DOI: 10.1142/S2010139224500010
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    More about this item

    Keywords

    Market manipulation; random auction ending; price efficiency;
    All these keywords.

    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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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