An anomaly detection index for investors.

Summary Fraud detection is a key issue for investors and financial authorities. Bernard Madoff's Ponzi scheme is an emblematic illustration of a large-scale fraud, always possible when well orchestrated. Traditional methods of detecting frauds require lengthy and costly investigations, requiring sophisticated financial and legal knowledge and highly trained professionals. Here we continue and extend the intuition of Billio et al [2015], who suggest the use of a performance measure - denoted GUN - to construct a fraud detection index. In order to illustrate the methodology and show its usefulness, we first analyze the Madoff case, and then, on several international equity mutual fund markets marketable in France, the number of funds potentially susceptible to fraud (or proven underperformance). The proposed alert system makes it possible to detect anomalies in several dozen funds, which should therefore be the subject of special attention.