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Diffusion entropy analysis on the scaling behavior of financial markets

Author

Listed:
  • Cai, Shi-Min
  • Zhou, Pei-Ling
  • Yang, Hui-Jie
  • Yang, Chun-Xia
  • Wang, Bing-Hong
  • Zhou, Tao

Abstract

In this paper the diffusion entropy technique is applied to investigate the scaling behavior of financial markets. The scaling behaviors of four representative stock markets, Dow Jones Industrial Average, Standard&Poor 500, Heng Seng Index, and Shang Hai Stock Synthetic Index, are almost the same; with the scale-invariance exponents all in the interval [0.92,0.95]. We also estimate the local scaling exponents which indicate the financial time series is homogenous perfectly. In addition, a parsimonious percolation model for stock markets is proposed, of which the scaling behavior agrees with the real-life markets well.

Suggested Citation

  • Cai, Shi-Min & Zhou, Pei-Ling & Yang, Hui-Jie & Yang, Chun-Xia & Wang, Bing-Hong & Zhou, Tao, 2006. "Diffusion entropy analysis on the scaling behavior of financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 367(C), pages 337-344.
    • Handle: RePEc:eee:phsmap:v:367:y:2006:i:c:p:337-344
    DOI: 10.1016/j.physa.2005.12.004
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    Citations

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    Cited by:

    1. Yue Yang & Changgui Gu & Qin Xiao & Huijie Yang, 2017. "Evolution of scaling behaviors embedded in sentence series from A Story of the Stone," PLOS ONE, Public Library of Science, vol. 12(2), pages 1-14, February.
    2. Partida, Alberto & Gerassis, Saki & Criado, Regino & Romance, Miguel & Giráldez, Eduardo & Taboada, Javier, 2022. "The chaotic, self-similar and hierarchical patterns in Bitcoin and Ethereum price series," Chaos, Solitons & Fractals, Elsevier, vol. 165(P2).
    3. Вороновицкий М.М., 2014. "Агент - Ориентированная Модель Замкнутого Однотоварного Рынка," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 50(2), pages 73-87, апрель.
    4. Yang, ChunXia & Hu, Sen & Xia, BingYing, 2012. "The endogenous dynamics of financial markets: Interaction and information dissemination," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(12), pages 3513-3525.
    5. Xue Pan & Lei Hou & Mutua Stephen & Huijie Yang & Chenping Zhu, 2014. "Evaluation of Scaling Invariance Embedded in Short Time Series," PLOS ONE, Public Library of Science, vol. 9(12), pages 1-27, December.
    6. Huang, Jingjing & Shang, Pengjian & Zhao, Xiaojun, 2012. "Multifractal diffusion entropy analysis on stock volatility in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(22), pages 5739-5745.
    7. Zavala-Díaz, J.C. & Pérez-Ortega, J. & Hernández-Aguilar, J.A. & Almanza-Ortega, N.N. & Martínez-Rebollar, A., 2020. "Short-term prediction of the closing price of financial series using a ϵ-machine model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 545(C).

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