International Evidence of End of Period Price Manipulation by Short Sellers

Abstract

The aim of this thesis was to take a broader look at the topic of price manipulation by short sellers on period end dates. While being a somewhat thoroughly explored topic in US markets there was a distinct lack of focus on international markets in which such a practice was also theoretically viable. This thesis therefore focuses on 29 international markets to determine whether the observations of period end price manipulation by short sellers seen in US markets extends to these markets as well. To conduct this analysis I examine data on short interest and prices over a 4 year period from 2006 to 2011. In order to conduct my analysis effectively I pool this data into several larger geographical regions and run a series of regressions on these pools which focus on patterns in prices and patterns in short selling volume. The output from these regressions allows me to place a specific focus on how these patterns might differ on days that are and days that are not period end dates, and whether these patterns are indicative of price manipulation. I also place a focus on several other factors including the availability of naked short selling and stock specific characteristics to determine how these factors might influence patterns in period end prices and short interest. The findings from my research however differ considerably from those found in prior US based studies. Unlike past studies I find very limited evidence of price manipulation on period end dates by short sellers. Furthermore, of the evidence I do find there are several inconsistencies among those results which make it difficult to suggest that a predictable pattern in period end prices and short interest exists. On the whole I conclude that price manipulation by short sellers on period end dates is not an endemic issue in international markets, however there is room for additional research to be conducted in the future.