Mazzarisi, Piero;
Ravagnani, Adele;
Deriu, Paola;
Lillo, Fabrizio;
Medda, Francesca;
Russo, Antonio;
(2024)
A machine learning approach to support decision in insider trading detection.
EPJ Data Science
, 13
(66)
10.1140/epjds/s13688-024-00500-2.
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Abstract
Identifying market abuse activity from data on investors’ trading activity is very challenging both for the data volume and for the low signal to noise ratio. Here we propose two complementary unsupervised machine learning methods to support market surveillance aimed at identifying potential insider trading activities. The first one uses clustering to identify, in the vicinity of a price sensitive event such as a takeover bid, discontinuities in the trading activity of an investor with respect to her own past trading history and on the present trading activity of her peers. The second unsupervised approach aims at identifying (small) groups of investors that act coherently around price sensitive events, pointing to potential insider rings, i.e. a group of synchronised traders displaying strong directional trading in rewarding position in a period before the price sensitive event. As a case study, we apply our methods to investor resolved data of Italian stocks around takeover bids.
| Type: | Article |
|---|---|
| Title: | A machine learning approach to support decision in insider trading detection |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1140/epjds/s13688-024-00500-2 |
| Publisher version: | https://doi.org/10.1140/epjds/s13688-024-00500-2 |
| Language: | English |
| Additional information: | © The Author(s), 2025. This is an open access article distributed under the terms of the Creative Commons Attribution-Non Commercial-No Derivatives License 4.0 (CC-BY-NC-ND), where it is permissible to download and share the work provided it is properly cited. The work cannot be changed in any way or used commercially without permission from the journal. http://creativecommons.org/licenses/by-nc-nd/4.0/ |
| Keywords: | Machine learning, Insider trading, Market abuse, Unsupervised learning, Statistically validated networks |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Civil, Environ and Geomatic Eng |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10206694 |
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