Entropy a new measure of stock market volatility
Based on the data from the Chinese financial market, this paper focuses on analyzing three types of network entropies of the financial market, namely, Shannon, Renyi and Tsallis entropies. The findings suggest that Shannon entropy can reflect the volatility of the financial market, that Renyi and Tsallis entropies also have this function when their parameter has a positive value, and that We used a sample based on the daily returns of the G7's major stock market indices. The results show the limitations of the standard deviation-based approach in fully characterising volatility and highlight the potentialities of entropy as a measure of uncertainty. An Unbiased Reexamination of Stock Market Volatility. N. GREGORY MANKIW. Search for more papers by this author Recent work demonstrates serious statistical problems with standard volatility tests. This paper proposes new tests that are unbiased in small samples and that do not require assumptions of stationarity. Entropy: A new measure Buckle up. After a relatively calm year in 2017, volatility in the stock market has returned in a big way. The most often cited measure of volatility, the Cboe Volatility Index or VIX, has popular measure of volatility being used as a benchmark for comparing the forecast ability of more complex models. 1.2 Entropy as a measure of volatility An alternative way to study stock market volatility is by applying concepts of physics which significant literature has already proven to be helpful in de-scribing financial and economic Measuring Stock Market Volatility: Measuring the S&P 500 on the VIX The composition of the VIX was changed in 2003. At that time, the CBOE created a “new” VIX by making two changes to the
Jan 3, 2001 are: stock market volatility, cross-sectional dispersion in forecaster beliefs, tion 6 we analyze dynamic relationships between entropy measures and stock market volatility, economic policy uncertainty (new-based EPU
Sep 26, 2008 the literature to measure stock market volatility, a central point in this debate Also, we shall mention that one of the advantages of this new Schwert [3] brought a new insight into this, who asked “Why does stock market volatility change over time?”. We use entropy to measure the uncertainty in the 2.1 Black'Scholes Model with GARCH Volatility . index the market uncertainty, then the entropy'maximizing market beliefs must prevail. On opti' mizing various entropic measures one can derive new stock option pricing models that are Nov 14, 2019 volatility of financial markets (see e.g. Kirilenko and Lo 2013, Lee et al. trade and market efficiency, but from a new angle. and calculate their entropy, i.e. a measure of the diversity of their distribution.1 Based on this, we. Alternate entropy measure for assessing volatility in financial markets. (1) Department of Electrical Engineering, IIT Delhi, Hauz Khas, New Delhi, India.
Nov 15, 2019 JPMCC, 2019 Paris Dauphine Commodities, Volatility, and Risk higher moments in equity markets is documented in Ang, Hodrick, Xing, physical entropy measure is smaller than the risk&neutral entropy measure, which is used to strategies: oCommodities trading booms as new strategy emergesp,
The paper establishes entropy as a measure of risk in asset pricing models by comparing The comparison is provided based on the European stock market data, volatility of the expected returns on individual stocks. For the daily data, the The uncertainty of the stock market and the volatility in stock market returns can be measured with entropy-based approaches, as suggested by previous studies [14] [15] [16][17][18][19]. Most When uncertainty dominates understanding stock market volatility is vital. There are a number of reasons for that. On one hand, substantial changes in volatility of financial market returns are capable of having significant negative effects on risk averse investors. Academia.edu is a platform for academics to share research papers. It should be remarked that different entropy indicators have been used for predictability of stock market returns and as measures of volatility, see e.g. anyway, as far as the authors know, the relationship between entropy and volatility and that between predictability and volatility have never been explored. The study is developed under common
Academia.edu is a platform for academics to share research papers.
More precisely, what we want to find out is if Tsallis entropy is able to detect volatility in stock market indexes and to compare its values with the ones obtained from the standard deviation. Also, we shall mention that one of the advantages of this new methodology is its ability to capture nonlinear dynamics. Based on the data from the Chinese financial market, this paper focuses on analyzing three types of network entropies of the financial market, namely, Shannon, Renyi and Tsallis entropies. The findings suggest that Shannon entropy can reflect the volatility of the financial market, that Renyi and Tsallis entropies also have this function when their parameter has a positive value, and that We used a sample based on the daily returns of the G7's major stock market indices. The results show the limitations of the standard deviation-based approach in fully characterising volatility and highlight the potentialities of entropy as a measure of uncertainty. An Unbiased Reexamination of Stock Market Volatility. N. GREGORY MANKIW. Search for more papers by this author Recent work demonstrates serious statistical problems with standard volatility tests. This paper proposes new tests that are unbiased in small samples and that do not require assumptions of stationarity. Entropy: A new measure Buckle up. After a relatively calm year in 2017, volatility in the stock market has returned in a big way. The most often cited measure of volatility, the Cboe Volatility Index or VIX, has popular measure of volatility being used as a benchmark for comparing the forecast ability of more complex models. 1.2 Entropy as a measure of volatility An alternative way to study stock market volatility is by applying concepts of physics which significant literature has already proven to be helpful in de-scribing financial and economic
article we apply the concept of entropy for underlying financial markets to make a comparison between Keywords: Entropy measures; Entropy estimators; Volatility; Financial markets. The entropic aproach for stock market volatility is a new.
More precisely, what we want to find out is if Tsallis entropy is able to detect volatility in stock market indexes and to compare its values with the ones obtained from the standard deviation. Also, we shall mention that one of the advantages of this new methodology is its ability to capture nonlinear dynamics. Entropy is a measure of randomness. Much like the concept of infinity, entropy is used to help model and represent the degree of uncertainty of a random variable . It is used by financial analysts In this article, we propose a method to analyze the stock market stability based on diffusion entropy, and conduct an empirical analysis of Dow Jones Industrial Average. Empirical results show that this method can reflect the volatility and extreme cases of the stock market.
Alternate entropy measure for assessing volatility in financial markets. (1) Department of Electrical Engineering, IIT Delhi, Hauz Khas, New Delhi, India. Sep 27, 2019 Financialization in commodity markets: A passing trend or the new normal? Volatility spillovers between oil prices and stock sector re-turns: Using transfer entropy to measure information flows between financial markets.