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Refined composite multiscale weighted-permutation entropy of financial time series

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  • Zhang, Yongping
  • Shang, Pengjian

Abstract

For quantifying the complexity of nonlinear systems, multiscale weighted-permutation entropy (MWPE) has recently been proposed. MWPE has incorporated amplitude information and been applied to account for the multiple inherent dynamics of time series. However, MWPE may be unreliable, because its estimated values show large fluctuation for slight variation of the data locations, and a significant distinction only for the different length of time series. Therefore, we propose the refined composite multiscale weighted-permutation entropy (RCMWPE). By comparing the RCMWPE results with other methods’ results on both synthetic data and financial time series, RCMWPE method shows not only the advantages inherited from MWPE but also lower sensitivity to the data locations, more stable and much less dependent on the length of time series. Moreover, we present and discuss the results of RCMWPE method on the daily price return series from Asian and European stock markets. There are significant differences between Asian markets and European markets, and the entropy values of Hang Seng Index (HSI) are close to but higher than those of European markets. The reliability of the proposed RCMWPE method has been supported by simulations on generated and real data. It could be applied to a variety of fields to quantify the complexity of the systems over multiple scales more accurately.

Suggested Citation

  • Zhang, Yongping & Shang, Pengjian, 2018. "Refined composite multiscale weighted-permutation entropy of financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 496(C), pages 189-199.
    • Handle: RePEc:eee:phsmap:v:496:y:2018:i:c:p:189-199
    DOI: 10.1016/j.physa.2017.12.116
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    References listed on IDEAS

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    1. Zunino, L. & Pérez, D.G. & Kowalski, A. & Martín, M.T. & Garavaglia, M. & Plastino, A. & Rosso, O.A., 2008. "Fractional Brownian motion, fractional Gaussian noise, and Tsallis permutation entropy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(24), pages 6057-6068.
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    4. Xia, Jianan & Shang, Pengjian & Wang, Jing & Shi, Wenbin, 2014. "Classifying of financial time series based on multiscale entropy and multiscale time irreversibility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 400(C), pages 151-158.
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    1. Zhang, Yongping & Shang, Pengjian & Xiong, Hui, 2019. "Multivariate generalized information entropy of financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 1212-1223.
    2. Han, Yun-Feng & Jin, Ning-De & Zhai, Lu-Sheng & Ren, Ying-Yu & He, Yuan-Sheng, 2019. "An investigation of oil–water two-phase flow instability using multivariate multi-scale weighted permutation entropy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 518(C), pages 131-144.

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