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Daily Arxiv

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A Comparative Analysis of Statistical and Machine Learning Models for Outlier Detection in Bitcoin Limit Order Books

Created by
  • Haebom

Author

Ivan Letteri

Outline

This paper conducts a comprehensive comparative analysis of powerful statistical methods and advanced machine learning techniques for outlier detection in cryptocurrency order books (LOBs). Within an integrated test environment called AITA Order Book Signal (AITA-OBS), we evaluate the effectiveness of 13 different models to identify the best method for detecting potential manipulative trading behavior. Through backtesting on a dataset of 26,204 records from major exchanges, we empirically evaluate the best performing model, Empirical Covariance (EC), which achieves a return of 6.70% higher than the standard buy-and-hold strategy. These results highlight the effectiveness of outlier-based strategies and provide insight into the trade-offs between model complexity, trading frequency, and performance. This study extends the research on cryptocurrency market microstructure, provides a rigorous benchmark of outlier detection models, and highlights their potential for improving algorithmic trading and risk management.

Takeaways, Limitations

Takeaways:
We highlight the importance of outlier detection in cryptocurrency LOB and demonstrate that effective outlier detection strategies can improve algorithmic trading and risk management.
We empirically demonstrate that the Empirical Covariance (EC) model is effective in detecting cryptocurrency LOB outliers.
Provides insights into the correlation between model complexity, transaction frequency, and performance.
Contributes to the study of the cryptocurrency market microstructure.
Limitations:
There may be limitations to generalizability as data from only specific exchanges is used.
The number of models used in the analysis may be limited.
Performance in real market environments may differ from backtesting results.
Specific details of the AITA-OBS test environment are limited and may require review for reproducibility.
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