TY - JOUR
T1 - Alternate entropy measure for assessing volatility in financial markets
AU - Bose, Ranjan
AU - Hamacher, Kay
PY - 2012/11/26
Y1 - 2012/11/26
N2 - We propose two alternate information theoretical approaches to assess non-Gaussian fluctuations in the return dynamics of financial markets. Specifically, we use superinformation, which is a measure of the disorder of the entropy of time series. We argue on theoretical grounds on its usefulness and show that it can be applied effectively for analyzing returns. A study of stock market data for over five years has been carried out using this approach. We show how superinformation helps to identify and classify important signals in the time series. The financial crisis of 2008 comes out very clearly in the superinformation plots. In addition, we introduce the super mutual information. Distinct super mutual information signatures are observed that might be used to mitigate idiosyncratic risk. The universality of our approach has been tested by carrying out the analysis for the 100 stocks listed in S&P100 index. The average superinformation values for the S&P100 stocks correlates very well with the VIX.
AB - We propose two alternate information theoretical approaches to assess non-Gaussian fluctuations in the return dynamics of financial markets. Specifically, we use superinformation, which is a measure of the disorder of the entropy of time series. We argue on theoretical grounds on its usefulness and show that it can be applied effectively for analyzing returns. A study of stock market data for over five years has been carried out using this approach. We show how superinformation helps to identify and classify important signals in the time series. The financial crisis of 2008 comes out very clearly in the superinformation plots. In addition, we introduce the super mutual information. Distinct super mutual information signatures are observed that might be used to mitigate idiosyncratic risk. The universality of our approach has been tested by carrying out the analysis for the 100 stocks listed in S&P100 index. The average superinformation values for the S&P100 stocks correlates very well with the VIX.
UR - http://www.scopus.com/inward/record.url?scp=84870826771&partnerID=8YFLogxK
U2 - 10.1103/PhysRevE.86.056112
DO - 10.1103/PhysRevE.86.056112
M3 - Article
AN - SCOPUS:84870826771
SN - 1539-3755
VL - 86
JO - Physical Review E - Statistical, Nonlinear, and Soft Matter Physics
JF - Physical Review E - Statistical, Nonlinear, and Soft Matter Physics
IS - 5
M1 - 056112
ER -