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Manipulation of Illiquid Asset Indexes​

Feb. 26, 2016

K. Jeremy Ko, Igor Kozhanov, and Sean Wilkoff

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We develop a model of manipulation of indexes, whose components are illiquid in
that they require fair valuation based on comparable instruments. Such an index may
be susceptible to manipulation since distorting the prices of only a few assets could
potentially shift its value. Our model provides a measure of the manipulability of an
index and identifies which assets are most likely to be manipulated. We apply our
model to analyze the manipulability of national municipal bond indexes subject to
various bond size thresholds.


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