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Detecting Collusive Cliques in Futures Markets Based on Trading Behaviors from Real Data

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  • Junjie Wang
  • Shuigeng Zhou
  • Jihong Guan
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    Abstract

    In financial markets, abnormal trading behaviors pose a serious challenge to market surveillance and risk management. What is worse, there is an increasing emergence of abnormal trading events that some experienced traders constitute a collusive clique and collaborate to manipulate some instruments, thus mislead other investors by applying similar trading behaviors for maximizing their personal benefits. In this paper, a method is proposed to detect the hidden collusive cliques involved in an instrument of future markets by first calculating the correlation coefficient between any two eligible unified aggregated time series of signed order volume, and then combining the connected components from multiple sparsified weighted graphs constructed by using the correlation matrices where each correlation coefficient is over a user-specified threshold. Experiments conducted on real order data from the Shanghai Futures Exchange show that the proposed method can effectively detect suspect collusive cliques. A tool based on the proposed method has been deployed in the exchange as a pilot application for futures market surveillance and risk management.

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    File URL: http://arxiv.org/pdf/1110.1522
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1110.1522.

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    Date of creation: Oct 2011
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    Handle: RePEc:arx:papers:1110.1522

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    Web page: http://arxiv.org/

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    1. Khwaja, Asim Ijaz & Mian, Atif, 2005. "Unchecked intermediaries: Price manipulation in an emerging stock market," Journal of Financial Economics, Elsevier, vol. 78(1), pages 203-241, October.
    2. Jan Hansen & Carsten Schmidt & Martin Strobel, 2004. "Manipulation in political stock markets - preconditions and evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 11(7), pages 459-463.
    3. Rajesh K. Aggarwal & Guojun Wu, 2006. "Stock Market Manipulations," The Journal of Business, University of Chicago Press, vol. 79(4), pages 1915-1954, July.
    4. Franklin Allen & Lubomir Litov & Jianping Mei, 2006. "Large Investors, Price Manipulation, and Limits to Arbitrage: An Anatomy of Market Corners," Review of Finance, European Finance Association, vol. 10(4), pages 645-693, December.
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