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Entropy trading strategies reveal inefficiencies in Japanese stock market

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  • Efremidze, Levan
  • Stanley, Darrol J.
  • Kownatzki, Clemens

Abstract

We empirically test the weak-form of the Efficient Market Hypothesis on Japanese equity markets with trading strategies timing both large and small capitalization portfolios. We find some of the active trading strategies outperform respective buy-and-hold benchmarks. The timing signals were based on sample entropy algorithms, where low sample entropy calls for long positions, while high sample entropy signals for short positions. Our results provide new empirical evidence against the Efficient Market Hypothesis based on the Japanese equity market data.

Suggested Citation

  • Efremidze, Levan & Stanley, Darrol J. & Kownatzki, Clemens, 2021. "Entropy trading strategies reveal inefficiencies in Japanese stock market," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 464-477.
    • Handle: RePEc:eee:reveco:v:75:y:2021:i:c:p:464-477
    DOI: 10.1016/j.iref.2021.04.021
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    More about this item

    Keywords

    EWJ; SCJ; Entropy; Tokyo stock exchange; Efficient market hypothesis; Trading rules;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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