Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Closing Price Manipulation in Indonesia Stock
Exchange: An Empirical Evidence during Financial Crisis 20082009
Steven Gunawan* and Deddy P. Koesindartoto**
Closing price is the latest price of a security traded on a certain day. It is the most
updated valuation of a stock. Investors can get information about the changes of stock
price using the closing price from each day and the information can be used to measure
the return and the sentiment from the market to the stock. Closing price of each trading
day also indicates the performance of the stock market and it can be used for stocks
benchmarking and the portfolio performance. Stock price manipulation can give benefit
for the stockholders because they are able to sell the stocks they owned at a higher price
at the opening of the market in the next trading day so traders with big net position will try
to manipulate the price to gain profits. On the contrary, the closing price manipulation can
also cause the realized unsystematic and extreme price movements in closing sessions.
This study is to analyse the existence of the closing price manipulation in Indonesia
Stock Exchange so that by understanding the price behaviour, many investors can be
helped in making the buying or selling decisions. The scope of this study is Indonesia
Stock Exchange daily transactions history during the pre-crisis, crisis, and recovery crisis
st
th
and post crisis time from 1 April 2008 until 30 April 2009. The samples are taken from
the highest volatility stocks of LQ 45 index and the authors use standard OLS regression
model to find the existence of the manipulation. From this analysis, the authors find out
that the closing price manipulation is possible in Indonesia Stock Exchange. After
knowing the trading behaviour in the Indonesia Stock Exchange, the information can be
used for educating investors to make the buying and selling strategies more wisely. The
result of this research can be used for further research on how to prevent the closing
price manipulation.
JEL Codes:
1. Introduction
Several extensive researches have been done that show that the movement of stock
markets around the world are more active in the opening and the closing session of a
certain trading day. The author found it interesting to analyse the existence of closing price
manipulation in Indonesia Stock Exchange. Closing price is the latest price of a security
traded on a certain day. It is the most updated valuation of a stock. Investors can get
information about the changes of stock price using the closing prices from each day and
the information can be used to measure the return and the sentiment from the market to
the stock. The active movement of the stock markets is supported by the price volatility,
volume of trading and the bid – offer orders frequency.
*Steven Gunawan, School of Business and Management, Bandung Institute of Technology,
Indonesia . Email : steve.gunawan@sbm-itb.ac.id
**Deddy P. Koeindartoto, School of Business and Management, Bandung Institute of Technology,
Indonesia . Email : deddypri@sbm-itb.ac.id
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Nowadays stock price manipulation has become concern for many people. Some studies
have been done, one of them is a study to identify manipulation in derivative security
market that is done by Kumar and Seppi (1992), Jarrow (1994) and Kyle (1984).
Based on The Capital Market Boards of Indonesia (1995), there are two types of price
manipulation: Rule 92 regulates about the Trade-Based Manipulation, a condition in which
a trader alters the stock prices by changing the buy orders, sell orders or even both. Rule
93 regulates about the Action-Based Manipulation, a condition where the manipulator
issues a misleading information or statement which can influence other traders who
believe in the statement. As the consequences, the manipulator can buy low and sell high
to gain profits.
Stock price manipulation can give benefit for the stockholders because they are able to
sell the stocks they owned at a higher price at the opening of the market in the next trading
day so traders with big net position will try to manipulate the price to gain profits. Besides
that, closing prices of each trading day indicates the performance of the stock market and
it can be used for stocks benchmarking and the portfolio performance. On the contrary, the
closing price manipulation can also cause irregular and intense price movements in the
closing of a certain trading day and lower the volatility which supports these rises.
In 2008, Güray Küçükkocaoğlu examines the possibility of manipulation of the closing
price in Istanbul Stock Exchange by observing the behaviour of the intra-daily stock
returns and close-end stock prices in the Istanbul Stock Exchange (ISE). The result of the
research showed that there is possibility of the closing price manipulation to occur in the
Istanbul Stock Exchange. Refer to the prior research by Güray Küçükkocaoğlu (2008), the
author wants to adapt the methods to process data from the stock exchange to discover
the possibility of the closing price manipulation to occur in Jakarta Stock Exchange.
This paper consists of six sections. Section 2 explains about the Indonesia Stock
Exchange, the research data and also the scope of the research, the intra-day pattern of
the selected stocks from LQ45 Index from April 1 st 2008 – April 30th 2009 that is divided
into 4 periods (Pre Crisis, Crisis, Recovery Crisis and Post Crisis). The model and method
used in this research are presented in section 3. Section 4 explains the findings of the
study whether the closing price manipulation exists or not in Indonesia Stock Exchange.
Section 5 consists of summary and conclusion of this study.
2. Literature Review
2.1 The Indonesia Stock Exchange (IDX)
The Indonesia Stock Exchange (IDX) is a stock exchange which based in Jakarta,
Indonesia. Until June 2nd 2014, there are 496 companies that are listed as the members of
Indonesia Stock Exchange. The trading system used is Jakarta Automated System so the
trading system is fully computerized. The trading sessions in Indonesia Stock Exchange is
presented in Table 1.
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Table 1 Indonesia Stock Exchange trading hours from April 1st 2008
– 30th April 2009
Trading Session
Day
Time
Pre Opening
Monday-Friday
9:10-9:25
1st Session
Monday-Thursday
9:30-12:00
Friday
9:30-11:30
Monday-Thursday
13:30-16:00
Friday
14:00-16:00
2nd Session
2.2 Data Set
In this research, the data set is gathered from the daily transaction history of Indonesia
Stock Exchange. The data includes trade time, trade price, trade quantity, trade value and
the name of the brokerage houses that do the transactions. The data consists of stocks of
the LQ45 index companies during the crisis time 1st April 2008 – 30th April 2009, which is
divided into four period that is Pre Crisis (1st April 2008 – 31st July 2008), Crisis (1st August
2008 – 28th October 2008), Recovery Crisis (29th October 2008 – 22nd December 2008)
and Post Crisis (23rd December 2008 – 30th April 2009).
The names of the 5 companies chosen from LQ45 index are listed in Table 2.
Table 2 Five Most Volatile Stocks from LQ45 Index
Stock Code
AALI
INCO
ITMG
PTBA
UNTR
Company Name
PT Astra Agro Lestari Tbk
PT Vale Indonesia Tbk
PT Indo Tambangraya Megah Tbk
PT Bukit Asam Tbk
PT United Tractors Tbk
2.3 The Pattern of Intra-day Returns and Standard Deviation
After selecting 5 most volatile stocks from the LQ45 index, we inspect the patterns of their
intra-day returns and standard deviations before analyzing the existence of the closing
price manipulation. When the returns of the stocks are high at the closing of a trading day,
whether it is positive or negative, there are possibilities of the closing price manipulation
exists. The returns of the stocks are calculated every 15 minutes since the opening of the
market until the closing of the market following the formula from Güray Küçükkocaoğlu
(2008).
Re,t = (pricet+15 – pricet)/ pricet
(1)
There are 22 calculation of returns for trading day Monday – Thursday and 18 calculations
of returns for Friday. From the calculations, we can get the data of the returns of each
stock for 15 minutes before the close and 15 minutes after the close. The changes in
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
returns of every 15 minutes interval since the opening of the market until the closing of the
market for the five stocks during the pre crisis, crisis, recovery crisis and post crisis period
are presented in Figure 1. It shows that the returns at the opening of the market are large
and positive for Pre Crisis, Recovery Crisis and Post Crisis. Meanwhile, the returns at the
opening for Crisis period are negative. The returns at the closing of the market for Pre
Crisis, Recovery Crisis and Post Crisis show a positive increase.
Figure 1 Intra-day Stock Returns for Pre Crisis, Crisis, Recovery Crisis and Post Crisis
Return
0.015
0.01
0.005
16:00
15:45
15:30
15:15
15:00
14:45
14:30
14:15
14:00
13:45
13:30
12:00
11:45
11:30
11:15
11:00
10:45
10:30
10:15
10:00
9:45
-0.005
9:30
0
-0.01
-0.015
Pre Crisis
Crisis
Recovery Crisis
Post Crisis
Figure 1 presents the pattern of standard deviations of the five stocks for every 15 minutes
interval from the opening of the market until the closing of the market for pre crisis, crisis,
recovery crisis and post crisis period. From Figure 1, the standard deviations patterns for
all of the periods overall are the same except for the crisis period. In the crisis period, the
pattern of the standard deviation is higher at the opening and the closing of the market.
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Figure 2 Intra-day Standard Deviations for Pre Crisis, Crisis, Recovery Crisis and Post Crisis
Standard Deviation
Pre Crisis
Crisis
Recovery Crisis
16:00
15:45
15:30
15:15
15:00
14:45
14:30
14:15
14:00
13:45
13:30
12:00
11:45
11:30
11:15
11:00
10:45
10:30
10:15
10:00
9:45
9:30
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
Post Crisis
2.4. Closing Price Manipulation
Felixson and Pelli (1999) have done the study by making a regression model to find the
existence of closing price manipulation by traders in Helsinki Stock Exchange. From the
study, Felixson and Pelli (1999) find that there is only a little possibilities that manipulation
of closing price exists in Helsinki Stock Exchange. Güray Küçükkocaoğlu (2008) replicates
the model built by Felixson and Pelli (1999) to test whether the closing price manipulation
exists in Istanbul Stock Exchange. The result is that it is possible for manipulation of
closing price to exist in Istanbul Stock Exchange.
Although for both of the studies from Felixson and Pelli (1999) and Güray Küçükkocaoğlu
(2008) the statistical results are not significant enough for many stocks, the closing price
manipulation still possible in the Helsinki and Istanbul Stock Exchange.
3. The Methodology and Model
This study replicates the model developed by Güray Küçükkocaoğlu (2008) in replication
of the first model developed by Felixson and Pelli (1999).The model,
Return i,close-15 = Intercept + b1*DBuyi,d + b2*DSelli,d + ei,d
(2)
and
Return i,close+15 = Intercept + c1*DBuyi,d + c2*DSelli,d + ei,d
(3)
Ho : b1 or c2<0, c1 or b2≥0
H1 : b1, c2>0 and c1, b2<0
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
The difference with the model used by Güray Küçükkocaoğlu (2008) is we do not use the
DBoth dummy variable because only two dummy variable is enough to represent three
conditions. We make some assumptions in this model by looking at the last minute of the
closing of the trading day. The first one, if the stocks are active at the last minute so the
price at the end of the day is higher than one minute before the closing, the dummy
variable DBuy is given value 1, the DSell is zero. The second one, if the stocks are active
at the last minute so the price at the closing of the trading day is lower than one minute
before the closing, the dummy variable DSell is given value 1, the DBuy is zero. Third, if
the stocks are active at the last minute so the price at the closing of a certain trading day is
the same with one minute before the closing, the dummy variable DBuy and DSell are both
given value 0. Last, if the stocks are active at the last minute so the price at the end of the
trading day is the same with one minute before the closing but in the one minute range,
the price is going up and down so that it becomes lower and higher than one minute
before the close, the dummy variable DBuy and DSell are both given value 1.
Based on the study from Güray Küçükkocaoğlu (2008), the regression coefficient b1
should be a positive value which means that the return of the stock before the close is
higher if the traders are attempting to manipulate the closing price and the b2 should be a
negative value which means that the return of the stock before the close is lower if the
traders are attempting to manipulate the closing price. If the values of the regression
coefficient fulfill the conditions mentioned earlier, the regression coefficient c1 must be
negative which shows the stock return after the closing is lower if there is attempts from
traders to do the manipulation of closing price on the previous day and the coefficient c2
must be positive which shows the stock return after the closing is if there is attempts from
traders to do the manipulation of closing price on the previous day. The intercept in this
model represents the normal returns when there is no manipulation attempts from the
trader.
4. The findings
The results of the model from the pre crisis, crisis, recovery crisis and post crisis periods
using standard OLS-Regression are shown in this part.
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.1. Pre Crisis
4.1.1 Return Before the Close (Rc-15)
From the intra-day returns, it is found that in the last 15 minutes the prices have the
tendency to decline and it tends to go up in the last minute of the trading days. Result
show that intercept for most stocks is negative, except for UNTR, which resemble the
stocks returns before the closing are negative if the closing price manipulation does not
exist.
The positive signs for DBuy are noted in stocks AALI, INCO, ITMG and PTBA. The
negative sign for DSell is only noted in stock UNTR.
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.1.2. Return After the Close (Rc+15)
The intercept of the stocks mostly shows a negative signs in accordance to the declining
movements of stocks returns in the 15 minutes of the opening in a certain trading day
during the pre crisis period. We expect the stocks which DBuy coefficient is negative on
the 15 minutes before the closing of the previous day should have negative coefficients
after the close. The stocks that show this change are AALI and PTBA. For the DSell, we
expect the stocks which have negative coefficients before the close should have positive
coefficients after the close. The change is noted in the stock UNTR.
Based on the result displayed in Tables 3 and 4, it is possible for closing price
manipulation to exist in pre crisis period. We can observe positive DBuy before the close
and negative DBuy after the close and negative DSell before the close and positive DSell
after the close in the five most volatile stocks of LQ45 Index Stocks. However, the DBuy is
more dominant than DSell. We can assume that closing prices of some stocks are
manipulated to a higher price in the pre crisis period (April 1st 2008 – July 31st 2008).
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.2. Crisis Analysis
4.2.1. Return Before the Close (Rc-15)
From the intra-day returns, it is found that in the last 15 minutes the prices have the
tendency to rise and it tends to decline during the last minute. Result shows that intercept
of most stocks is negative, except for AALI, which resemble the stocks returns before
closing are negative if the closing price manipulation does not exist.
The positive signs for DBuy are noted in stocks INCO, ITMG, PTBA and UNTR. The
negative sign for DSell is only noted in stock AALI.
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.2.2. Return After the Close (Rc+15)
The intercept of the stocks mostly shows a negative signs in accordance to the declining
movements of stocks returns in the 15 minutes of the opening in a certain trading day
during the crisis period. We expect the stocks which DBuy coefficient is negative on the 15
minutes before the closing of the previous day should have negative coefficients after the
close. The stock that show this changes are INCO and PTBA. For the DSell, we expect the
stocks which have negative coefficients before the close should have positive coefficients
after the close. The change is noted in the stock AALI.
Based on the result displayed in Tables 5 and 6, it is possible for closing price
manipulation to exist in crisis period. We can positive DBuy before the close and negative
DBuy after the close and negative DSell before the close and positive DSell after the close
in the five most volatile stocks of LQ45 Index Stocks. However, the DBuy is more
dominant than DSell. We can assume that closing prices of some stocks are manipulated
to a higher price in the crisis period (August 1st 2008 – October 28th 2008).
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.3. Recovery Crisis
4.3.1. Return Before the Close (Rc-15)
From the intra-day returns, it is found that in the last 15 minutes the prices have the
tendency to rise and decline a little in the last minute of the trading day. The intercept for
most of the stocks is negative, except for AALI and INCO, which resemble the returns of
the stocks before the stocks are negative if the closing price manipulation does not exist.
The positive signs for DBuy are noted in stocks INCO, ITMG, PTBA and UNTR. The
negative signs for DSell are only noted in stock AALI, ITMG and PTBA.
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.3.2. Return After the Close (Rc+15)
The intercept of the stocks mostly shows a positive signs in accordance to the rising
movements of stock returns in the opening of a certain trading day in the recovery crisis
period. We expect the stocks which DBuy coefficient is positive on the 15 minutes before
the closing of the previous day should be negative after the close. The stock that show this
changes are INCO, ITMG, UNTR. Meanwhile for the DSell, we expect the stocks which
have negative coefficients before the close should have positive coefficients after the
close. However, there is not any stocks that fulfill the expectation.
Based on the result displayed in Tables 7 and 8, it is possible for closing price
manipulation to exist in recovery crisis period. We can only observe positive DBuy before
the close and negative DBuy after the close in the recovery crisis period. We can assume
that closing prices of some stocks are manipulated to a higher price in the recovery crisis
period (October 29th 2008 – December 22nd 2008).
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.4. Post Crisis
4.4.1. Return Before the Close (Rc-15)
From the intra-day returns, it is found that in the last 15 minutes the prices have the
tendency to decline and rise in the last minute of the trading day. The intercept for all of
the stocks are negative, which resemble the returns of the stocks before the closing are
negative if the closing price manipulation does not exist.
The positive signs for DBuy are noted in all stocks (AALI, INCO, ITMG, PTBA and UNTR).
There is not any negative signs for DSell observed in the before the close of post crisis
period.
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.4.2. Return After the Close (Rc+15)
The intercept of the stocks mostly shows a positive signs in accordance to the rising
movements of stock returns in the opening of a certain trading day in the post crisis period.
We expect the stocks which DBuy coefficient is positive on the 15 minutes before the
closing of the previous day should be negative after the close. The stock that shows this
change is PTBA. Meanwhile for the DSell, we expect the stocks which have negative
coefficients before the close should have positive coefficients after the close. However,
there are not any stocks that fulfill the expectation.
Based on the result displayed in Table 9 and 10, it is possible for closing price
manipulation to exist in post crisis period. We can observe positive DBuy before the close
and negative DBuy after the close. There is only change in DBuy that can be observed in
this post crisis period. We can assume that closing prices of some stocks are manipulated
to a higher price in the post crisis period (December 23rd 2008 – April 30th 2009).
Based on the study by observing the regression coefficient of variables of the regression,
there is possibility of the closing price manipulation exists in Indonesia Stock Exchange
during the four period of the crisis time from April 1st 2008 – April 30th 2009. The
manipulation that occurs during all periods is manipulation to make the closing price
higher.
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Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
5. Summary and Conclusions
This study examines the existence of closing price manipulation in Jakarta Stock
Exchange during crisis time 2008 – 2009. Based on the study, it is possible for
manipulation of closing price to exist in Indonesia Stock Exchange during the four crisis
period of April 1st 2008 – 30th April 2009. The effort to increase the closing price into a
higher price is greater than the effort to make the closing price lower. From the result,
although in the middle of crisis, mostly the manipulations occur are to increase the prices
into higher level.
This study is the first study to examine the existence of closing price manipulation in
Indonesia Stock Exchange. The result consistent with the previous studies in Helsinki
Stock Exchange by Felixson and Pelli (1999) and Güray Küçükkocaoğlu (2008) in Istanbul
Stock Exchange, which the results come out with statistical results that are insignificant
and weak, shows that closing price manipulation appears possible in these stock
exchanges.
The manipulation of closing price does not exist every day. The manipulation attempts at
close, according to Güray Küçükkocaoğlu (2008) could be covered up by the large
volumes of buy and sell orders effected by firm specific and macroeconomic news. The
future research of this study could be the mechanism on how the closing price
manipulation could be prevented.
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