• ISSN: 2010-023X
    • Frequency: Bimonthly
    • DOI: 10.18178/IJTEF
    • Editor-in-Chief: Prof.Tung-Zong (Donald) Chang
    • Executive Editor: Ms. Cherry L. Chen
    • Abstracting/ Indexing: Engineering & Technology Digital Library, ProQuest, Crossref, Electronic Journals Library, DOAJ , EBSCO, and Ulrich's Periodicals Directory
    • E-mail: ijtef@ejournal.net
IJTEF 2016 Vol.7(3): 81-88 ISSN: 2010-023X
DOI: 10.18178/ijtef.2016.7.3.503

Stock Price Manipulation Detection Based on Mathematical Models

Teema Leangarun, Poj Tangamchit, and Suttipong Thajchayapong
Abstract—We investigated two popular scenarios of stock price manipulations: pump-and-dump and spoof trading. Pump-and-dump is a procedure to buy a stock and push its price up. Then, the manipulator dumps all of the stock he holds to make a profit. Spoof trading is a procedure to trick other investors that a stock should be bought or sold at the manipulated price. We proposed mathematical definitions based on level 2 data for both scenarios, and used them to generate a training set consisting of buy/sell orders in an order book of 10 depths. Order cancellations, which are important indicators for price manipulation, are also visible in this level 2 data. In this paper, we considered a challenging scenario where we attempted to use less-detailed level 1 data to detect manipulations even though using level 2 data is more accurate. First, we implemented feedforward neural network models that have level 1 data, containing less-detailed information (no information about order cancellation), but is more accessible to investors as an input. The neural network model achieved 88.28% accuracy for detecting pump-and-dump but it failed to model spoof trading effectively. Therefore, we further investigate the two-dimensional Gaussian model and show that it can detect spoof trading using level 2 data as input.

Index Terms—Stock price manipulation, pump-and-dump, spoof trading, neural network.

Teema Leangarun and Poj Tangamchit are with the Department of Control Systems and Instrumentation Engineering, King Mongkut’s University of Technology Thonburi, Bangkok, Thailand (e-mail: teema.lea@mail.kmutt.ac.th, poj.tan@kmutt.ac.th).
Suttipong Thajchayapong is with the National Electronic and Computer Technology Center, National Science and Technology Development Agency (NSTDA), Thailand (e-mail: suttipong.tha@nectec.or.th).

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Cite: Teema Leangarun, Poj Tangamchit, and Suttipong Thajchayapong, "Stock Price Manipulation Detection Based on Mathematical Models," International Journal of Trade, Economics and Finance vol.7, no.3, pp. 81-88, 2016.

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