This discomfiting proposition is being advanced by Michael Aitken, a finance professor at the University of New South Wales in Sydney.
Aitken looked at 22 exchanges to see which were ostensibly the easiest to monkey with. Assessing transaction costs and the impact of trading on market prices between March 1999 and October 2002, and using his own arcane measurement system to identify “the creation of potentially deliberate short-term supply-demand imbalances,” Aitken concluded that the exchanges scoring lowest in price integrity -- that is, highest in manipulability -- were, from the bottom up: Taiwan, Jakarta, Kuala Lumpur, Tokyo and Paris.
All but Jakarta and Kuala Lumpur, of course, are efficient. Other results were equally discombobulating. Although rated dead last in efficiency, the Philippine Stock Exchange nonetheless topped the New York Stock Exchange in price integrity.
The 45-year-old Aitken, who conducted his research for Australia’s government-funded Capital Markets Cooperative Research Center, says his survey “clearly suggests that there is no obvious connection between efficiency and integrity.” But why that’s the case, he adds, is “a question that needs a lot more study.”
Predictably, some exchanges did not react well. Aitken “appears to acknowledge no distinction between volatility, which is a normal feature of capital markets operation, and ‘window dressing’ or ‘ramping,’” grumbled the Australian Stock Exchange, ranked 12th for integrity and 13th for efficiency.
Aitken is happy to have provoked debate: “I’m glad the ASX and other exchanges are finally thinking about these issues.”
