LAUSR

This study empirically investigates the profitability of one of the most widely used trade-based manipulation tools, namely the wash trading. Using a unique account level dataset over the 2003-2006 period from the Istanbul Stock Exchange (ISE), we generate a measure for usage of wash sales for each individual account and check whether dealing with wash trading provides any excess return for the investors. Empirical results reveal that significant number of investors perform wash sales and having up to 30% of the total trades as wash sales provides excess profit whereas using up to 10% is the most profitable range with a 0.5% monthly excess return. Consistent with previous studies, trade-based manipulation is commonly seen at illiquid segment of the stock market, but on the other hand our results show that wash trading is profitable for the most liquid stocks while not for the most illiquid segment.