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Adaptive Hidden Markov Model With Anomaly States for Price Manipulation Detection

Cao, Yi and Li, Yuhua and Coleman, Sonya and Belatreche, Ammar and McGinnity, Thomas Martin (2015) 'Adaptive Hidden Markov Model With Anomaly States for Price Manipulation Detection.' IEEE Transactions on Neural Networks and Learning Systems, 26 (2). pp. 318-330. ISSN 2162-237X

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Abstract

Price manipulation refers to the activities of those traders who use carefully designed trading behaviors to manually push up or down the underlying equity prices for making profits. With increasing volumes and frequency of trading, price manipulation can be extremely damaging to the proper functioning and integrity of capital markets. The existing literature focuses on either empirical studies of market abuse cases or analysis of particular manipulation types based on certain assumptions. Effective approaches for analyzing and detecting price manipulation in real time are yet to be developed. This paper proposes a novel approach, called adaptive hidden Markov model with anomaly states (AHMMAS) for modeling and detecting price manipulation activities. Together with wavelet transformations and gradients as the feature extraction methods, the AHMMAS model caters to price manipulation detection and basic manipulation type recognition. The evaluation experiments conducted on seven stock tick data from NASDAQ and the London Stock Exchange and 10 simulated stock prices by stochastic differential equation show that the proposed AHMMAS model can effectively detect price manipulation patterns and outperforms the selected benchmark models.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Divisions: Faculty of Science and Health > Computer Science and Electronic Engineering, School of > Centre for Computational Finance and Economic Agents
Depositing User: Jim Jamieson
Date Deposited: 05 Aug 2016 12:01
Last Modified: 05 Aug 2016 12:01
URI: http://repository.essex.ac.uk/id/eprint/17368

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