tailieunhanh - Do Hedge Funds Manipulate Stock Prices?

» Clear communication facilitates effective risk management. Establishing clear and open lines of communication among interested parties across an organization helps ensure that certain risks do not fall through the cracks and that data and information flowing between business units (including, where relevant, external service providers such as the custodian, fund accountant, and transfer agent) are understood by all to mean the same thing. » Organizational structures and policies themselves can serve as risk controls. Segregation of duties, independence of control functions from business lines, and the use of committees or other, more informal approaches for breaking. | Do Hedge Funds Manipulate Stock Prices Itzhak Ben-David Fisher College of Business The Ohio State University Francesco Franzoni Swiss Finance Institute and University of Lugano Augustin Landier Toulouse School of Economics Rabih Moussawi Wharton Research Data Services The Wharton School University of Pennsylvania February 2011 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. We thank Alessandro Beber Bruno Biais YeeJin Jang Gulten Mero Tarun Ramadorai David Thesmar and conference participants of the 3rd Annual Hedge Funds Conference in Paris for helpful comments. If I were long and I would like to make things a little bit more rosy I d go in and take a bunch of stocks and make sure that they are higher. A hedge fund needs to do a lot to save itself. Jim Cramer ex-hedge fund manager in an interview to December 2006 1. Introduction As arbitrageurs the economic function of hedge funds is to bring prices closer to fundamentals. This paper shows that this role is partly betrayed by hedge funds incentive to maximize fees. In particular we provide evidence suggesting that hedge funds are likely to pump up end-of-month stock prices in order to improve their performance. Based on the holdings data of hedge funds in conjunction with daily and intraday .