​K. Jeremy Ko, Igor Kozhanov, and Sean Wilkoff

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2737567

Abstract:

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.