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D. J. Cumming, S. Ji and C. Sala: Option Market Manipulation

January 15, 2025

We investigate the behavior of options markets in response to potential stock market manipulations, with a specific focus on cross-product manipulation. Unlike existing literature, we rely on a dataset of manipulated stock prices, thereby avoiding the joint hypothesis problem. Key findings reveal a discernible increase in trading volume preceding manipulation events, with a preference for short-term, out-of-the-money options. The study also highlights inefficiencies in the options market during manipulation periods and examines factors influencing traders’ strategies. Results are not explained by volatility, firm-specific information, and do not indicate day-of-week effects.

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