Pricing accuracy,liquidity and trader behavior with closing price manipulation |
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| Authors: | Carole Comerton-Forde Tālis J Putni?? |
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| Institution: | 1.Faculty of Economics and Business,University of Sydney,Sydney,Australia;2.Stockholm School of Economics in Riga,Riga,Latvia |
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| Abstract: | We study the effects of closing price manipulation in an experimental market to evaluate the social harm caused by manipulation.
We find that manipulators, given incentives similar to many actual manipulation cases, decrease price accuracy and liquidity.
The mere possibility of manipulation alters market participants’ behavior, leading to reduced liquidity. We find evidence
that ordinary traders attempt to profitably counteract manipulation. This study provides examples of the strategies employed
by manipulators, illustrates how these strategies change in the presence of detection penalties and assesses the ability of
market participants to identify manipulation. |
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