Does Random Auction Ending Curb Stock Price Manipulation?

Yiping Lin, David Michayluk () and Mi Zou ()
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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

Quarterly Journal of Finance (QJF), 2023, vol. 13, issue 04, 1-33

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.

Keywords: Market manipulation; random auction ending; price efficiency (search for similar items in EconPapers)
JEL-codes: G12 G14 G18 K22 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S2010139224500010

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