The Long and the Short of it: Evidence of Year-End Price Manipulation by Short Sellers

Do Hedge Funds Manipulate Stock Prices?

“…Figure 1, Panel B shows evidence regarding stock turnover. This analysis is akin to Blocher, Engelberg, and Reed (2010), who analyze abnormal short-selling volume. Turnover is calculated as shares traded scaled by total shares outstanding.…”

“…Ni, Pearson, and Poteshman (2005) report that stock prices tend to cluster around option strike prices on expiration dates. Blocher, Engelberg, and Reed (2010) show that short-sellers put downward pressure on prices in the last moments of trading before the end of the year. 2 The paper proceeds as follows: Section I describes the data sources used, while Section II develops the hypotheses about the incentive to manipulate security prices and the methods that may enable such practices.…”

“…Ni, Pearson, and Poteshman () report that stock prices tend to cluster around option strike prices on expiration dates. Blocher, Engelberg, and Reed () show that short‐sellers put downward pressure on prices in the last moments of trading before the end of the year…”

“…Consistent with this view, Zweig (1999) and Carhart et al (2002) find that mutual funds pump the prices of the stocks they hold prior to quarterly reporting dates. Blocher, Engelberg, and Reed (2010) show that short-sellers exercise selling pressure in the last minutes of the year to inflate their returns.…”

Short-Selling, Leverage, and Systemic Risk

“…They also report that aggressive short-selling makes markets more illiquid. Bocher et al (2008) argue that hedge funds have an incentive to manipulate "end of the day returns" and "year-end" returns to influence compensation. They find significant increases in short selling volume at the end of these periods and lower returns for stocks in which hedge funds hold large short positions.…”