Detecting possible outliers in the Colombo stock exchange

Abstract

Insider trading poses a significant challenge for stock markets, including the Colombo Stock Exchange, as it undermines investor confidence. The purpose of this study is to develop an innovative methodology that can effectively identify and flag suspicious transactions and investors. The proposed approach considers a multitude of parameters that influence the behavior of insider traders, which have been overlooked in current detection methods. This method mainly focuses on assessing the change in the trading behavior of investors in relation to price-sensitive corporate events compared to their past behavior and the behavior of peer investors. As an initiation, we used trade data for the year 2016- 2021 and identified potential suspicious investors and transactions. By utilizing this approach, we seek to enhance the effectiveness of identifying insider trading and mitigate its adverse effects on the market.