Smells like a bear raid
Trading data suggest 2007 effort to manipulate market
By Rachel Ehrenberg
Two extraordinarily large trading days for Citigroup shares in the fall of 2007 hint that someone may have been manipulating the stock, say analysts who mine financial data using powerful computers and mathematical algorithms.
Researchers from the New England Complex Systems Institute in Cambridge, Mass., were examining stock trading data for the period January 2007 to January 2009 when they noticed two unusually large spikes in volume and other measures related to Citigroup shares. On November 1, 2007, the team noted, the number of borrowed Citigroup shares jumped by 100 million, reaching a value of almost $6 billion. Six days later, a similar number of borrowed shares were returned on a single day, the team reports online December 14 at arXiv.org. The estimated gain for the investors who made the transactions was at least $640 million.
Such extreme events would be expected only once in a few hundred years, says Yaneer Bar-Yam, coauthor of the work. The likelihood of seeing those events six days apart is once in 4 billion years, the researchers’ calculations show. This suggests to Bar-Yam and his colleagues that the stock was being manipulated to artificially drive down Citigroup’s stock price.
The researchers were investigating short selling, whereby an investor borrows shares and sells them immediately, with the promise to buy them back at a later date to repay the loan. If the stock’s price drops between the transactions, the borrower will make a profit.