Portfolio Pumping in Singapore: Myth or Reality?

Abstract

A 2004 case involving portfolio pumping led to the successful prosecution of a fund manager in Singapore in 2010. Relative to the prominent profile of the fund manager and the size of the AUM (Assets under management) under his charge, the amount of fines doled out was not significant. The signaling effect on the industry towards improving market integrity is therefore unknown. Against this background and together with the availability of hard to come by tick by tick equity market transaction data from the Singapore Exchange, we commenced a quantitative enquiry to examine the bourse’s degree of portfolio pumping activity before and after the legal prosecution and regulatory events.During the process, we also attempted to understand whether the existing regulatory framework is effective in dealing with such activities. Portfolio pumping (also known as marking the close) occurs when the price of a stock is bid up artificially at the end of the day (typically at quarter ends), and thereafter reverts down to its market equilibrium level the following day. Our findings found excess returns at the year ends, however it did not find evidence that these were due to portfolio pumping activities. The study also found limited evidence of window dressing activities (window dressing occurs when poor-performing stocks in the portfolio are sold and replaced with well-performing stocks. This typically occurs at the end of the year in an effort to paint a favorable picture of the fund manager’s portfolio when it is published in the annual report). We suspect that these results were due to the combination of the signaling effects of enforcement actions and relevant reforms in the regulatory framework, making portfolio pumping activity an expensive affair. The study also identified common characteristics of Singapore-listed companies that might merit further analysis.