Abstract
Most technical trading strategies use the official closing price for analysis. But what is the effect when the official closing price is subject to market manipulation? This paper answers this question by testing the difference of profitabilities between using the official closing price and the last tick price. The results show a significant improvement of profitability by using the last tick price over the official closing price based on a data set in Hong Kong from 2011 to 2018.
Highlights
The closing price is important in finance
The main goal of this study is to investigate the impact of closing price manipulation from a practical point of view
This study supports the argument that the last tick price is better than the official closing price to reflect the true market condition, possibly owing to closing price market manipulation
Summary
The closing price is important in finance. It is the most commonly used financial data in both academia and industry. It is exposed to market manipulation which is defined as stock prices being artificially influenced (Allen and Gale 1992). Most quantitative trading strategies use the official closing price as their input. This study examines the profitability impact of closing price market manipulation on technical trading strategies. Allen and Gale (1992) are early pioneers to start studies on market manipulation and formalize the study. They introduce the concept of trade-based and information-based manipulation to classify cases of market manipulation. Aggarwal and Wu (2006) investigate cases of stock market manipulation and conclude that market manipulation alters stock returns as a result
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