While searching for some blog inspiration, I found a recent article in the Journal of Management Information Systems that caught my eye. The article is about a study on how data from financial social media can be used to detect the early signs of corporate fraud.
I already knew that social media can be used to collect information about people’s opinions, habits, etc. Also I knew that it is possible to detect fraud by machine learning analyzing financial data. Still it surprises me that by using financial social media data, corporate fraud can be detected. How is this possible?
Well, financial social media like SeekingAlpha or Yahoo Finance contain all kind of information, just like standard social media, such as Facebook. Only on financial social media you can find user-generated content (UGC) like return on investment, product announcements, etc. The authors of the article I found, show that from UGC, latent features can be derived that are leading for fraud detection.
The authors have developed an algorithm that uses social media features together with traditional data as financial ratios and language-based features. To make this algorithm, systemic functional linguistics (SFL) theory has been used.
After evaluating the performance of the algorithm, the authors found out that their development leads to an 80 percent prediction accuracy, which is higher than the prediction accuracy of currently used procedures. Corporate fraud is a big problem and detecting it using traditional methods can be very challenging and time-consuming. For these reasons, the authors claim that a similar framework system as they invented, should be developed. It could be used by the government, security agencies, research institutes, and others. Several stakeholders would benefit from such a system.
If you want to know more about using financial social media to detect corporate fraud or how the authors have used SFL, I would recommend you to read the article.
Feel free to let me know how you think about my post and if you have any questions, please ask. ?
References:
Dong, W., Liao, S., & Zhang, Z. (2018). Leveraging Financial Social Media Data for. Journal of Management Information Systems, 461-487.
