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Benford's LawTheory and Applications$
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Steven J. Miller

Print publication date: 2015

Print ISBN-13: 9780691147611

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691147611.001.0001

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Testing for Strategic Manipulation of Economic and Financial Data

Testing for Strategic Manipulation of Economic and Financial Data

(p.257) Chapter Thirteen Testing for Strategic Manipulation of Economic and Financial Data
Benford's Law

Charles C. Moul

John V. C. Nye

Princeton University Press

This chapter surveys applications of Benford's law within economics, such as its use in investigating the validity of macroeconomic data series. It argues that, given the strong interest in strategic behavior in economics, it makes sense to use Benford's law to investigate possible anomalies that suggest manipulation or other interference, especially when incentives increase for such tampering. The chapter then considers how a first-digit analysis informs Value at Risk (VAR) data from the U.S. financial sector over the past ten years. It finds that Benford's law fits precrisis data very well but is rejected for postcrisis data. Opportunities and incentives for such misreporting are then discussed.

Keywords:   economics, Value at Risk, VAR, finance, first-digit analysis, misreporting, tampering

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