Can Random Auction Ending Curb Market Manipulation?

Abstract

This paper examines whether a randomized auction ending time reduces market manipulation. Using the random auction ending rule implemented on the Singapore Exchange, we examine changes in indicators of market manipulation and market efficiency. We find that end of day price swings and price dislocation probability both declined, suggesting a lower risk of market manipulation. In addition, the variance ratio and market-adjusted return volatility measures have decreased indicating a more efficient and less volatile price discovery process. We do note that there are still telltale signs of manipulation in the pre-auction opening and pre-closing phase suggesting that the length of time of this phase is important. Overall, our results indicate that the randomized auction ending can curb market manipulation and improve price efficiency.

Keywords: Market Manipulation, Random Auction Ending, Price Efficiency

JEL Classification: G12, G14, G18, K22