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

Seongkyu (Gilbert) Park, Wing Suen and Kam-Ming Wan

Journal of Financial Markets, 2022, vol. 58, issue C

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.

Keywords: Call auction design; Closing price manipulation; Overnight price reversal; CBBC; Sniping (search for similar items in EconPapers)
JEL-codes: D44 G14 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.finmar.2021.100700

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Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

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