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Adaptive Hidden Markov Model With Anomaly States for Price Manipulation Detection

Cao, Yi, Li, Yuhua, Coleman, Sonya, 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.

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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
Divisions : Faculty of Arts and Social Sciences > Surrey Business School
Authors :
NameEmailORCID
Cao, Yiyc0006@surrey.ac.ukUNSPECIFIED
Li, YuhuaUNSPECIFIEDUNSPECIFIED
Coleman, SonyaUNSPECIFIEDUNSPECIFIED
Belatreche, AmmarUNSPECIFIEDUNSPECIFIED
McGinnity, Thomas MartinUNSPECIFIEDUNSPECIFIED
Date : 22 April 2015
Identification Number : 10.1109/TNNLS.2014.2315042
Copyright Disclaimer : © 2014 IEEE. Personal use is permitted, but republication/redistribution requires IEEE permission. See http://www.ieee.org/publications_standards/publications/rights/index.html for more information.
Uncontrolled Keywords : Anomaly detection; Capital market microstructure; Feature extraction; Hidden Markov model (HMM); Market abuse; Price manipulation
Depositing User : Clive Harris
Date Deposited : 11 Sep 2017 13:33
Last Modified : 11 Sep 2017 13:33
URI: http://epubs.surrey.ac.uk/id/eprint/842232

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