A multiscale entropy approach for market efficiency
AbstractMotivated by the recently evolutionary economic theories, we propose to study market efficiency from an informational entropy viewpoint. The basic idea is that, rather than being an all-or-none concept as in classic economic theories, market efficiency changes over time and over time horizons. Within this framework, market efficiency is measured in terms of the patterns contained in the price changes sequence relative to the patterns in a random sequence. In line with evolutionary finance ideas, the empirical results for the Dow Jones Index showed that the degree of market efficiency varies over time and is dependent of the time scale. In general, the DJI is more efficient for shorter (about days) than for longer (about months and quarters) time scales. On the other hand, the market efficiency exhibits a cyclic behavior with two dominant periods of about 4.5 and 22years. It is apparent that the 4.5-year cycle is related to inventory (Kitchin-type) effects, while the 22-year cycle to structure inversion (Kondriatev-type) cycles.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 21 (2012)
Issue (Month): C ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620166
Market efficiency; Entropy; Dow Jones Index; Cycle;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.