TY - CONF

T1 - The Financial Consequence of Integrity: Using Automated Fraud Detection for Investment

AU - Yee, Amanda

AU - Gepp, Adrian

AU - Kumar, Kuldeep

AU - Vanstone, Bruce J

N1 - 9th Australasian Actuarial Education and Research Symposium : Actuarial Science and Data Analytics, AAERS ; Conference date: 05-12-2018 Through 06-12-2018

PY - 2018

Y1 - 2018

N2 - This paper investigates the financial consequence of integrity. We study how portfolio performance is affected by avoiding investing in companies that are more likely to have committed financial statement fraud. Using a fraud detection model built using data analytics, companies are ranked according to a score indicating their likelihood of being fraudulent. Two investment strategies are then formed. The first invests in companies with low fraud scores whereas the other invests in those with high scores. We find that investment performance can be improved, with higher returns and lower risk, by investing in companies less likely to have committed fraud in preference to those more likely. This suggests that the price of integrity is not high. Portfolio performance was not be financially damaged by excluding companies likely to have committed financial statement fraud and, in fact, benefited from doing so.

AB - This paper investigates the financial consequence of integrity. We study how portfolio performance is affected by avoiding investing in companies that are more likely to have committed financial statement fraud. Using a fraud detection model built using data analytics, companies are ranked according to a score indicating their likelihood of being fraudulent. Two investment strategies are then formed. The first invests in companies with low fraud scores whereas the other invests in those with high scores. We find that investment performance can be improved, with higher returns and lower risk, by investing in companies less likely to have committed fraud in preference to those more likely. This suggests that the price of integrity is not high. Portfolio performance was not be financially damaged by excluding companies likely to have committed financial statement fraud and, in fact, benefited from doing so.

M3 - Paper

T2 - 9th Australasian Actuarial Education and Research Symposium: Actuarial Science and Data Analytics

Y2 - 5 December 2018 through 6 December 2018

ER -