MODELING ELECTRONIC MONEY TRANSACTION FRAUD VOLUMES IN KENYA USING GENERALISED AUTOREGRESSIVE CONDITIONAL HETEROSKEDASTIC MODEL
Abstract
Electronic transaction fraud has been on the increase in recent times. Though technology advancement is cited as a major milestone in the global business environment, at times, it comes with challenges, such as financial risks. Businesses and individuals have been losing their hard-earned funds through online-related transaction frauds, and the trend continues to increase. Studies reviewed heavily used deep learning and machine learning to investigate the detection of online-related fraudulent activities. The current study, however, deviated from this norm by focusing on modelling electronic transaction fraud volumes using the Generalised Auto-regressive Conditional Heteroscedastic (GARCH) model. The study employed grid search cross-validation parameter optimisation techniques and popular loss functions, including Mean Absolute Error (MAE), Root Mean Square Error (RMSE), Akaike Information Criterion (AIC), and Bayesian Information Criterion (BIC) to find the best-fitting model. The study objective was to establish a suitable model for forecasting changes (Variations) in the volume of money lost from fraudulent transactions in Kenya. The study is anchored on the fraud triangle model and fraud diamond model. The study revealed that GARCH (1,1) model predicts electronic transaction fraud volume deviations in Kenya; with the prediction, the risk of financial losses can be averted. This study is important to stakeholders such as the public, corporations, regulators such as the Central Bank of Kenya, financial institutions such as commercial banks, and scholars.
JEL: E52, E43, G21, G23, C25, D12, E42
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DOI: http://dx.doi.org/10.46827/ejefr.v8i7.1883
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