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Timescale Analysis with an Entropy-Based Shift-Invariant Discrete Wavelet Transform

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  • Stelios Bekiros

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Abstract

This paper presents an invariant discrete wavelet transform that enables point-to-point (aligned) comparison among all scales, contains no phase shifts, relaxes the strict assumption of a dyadic-length time series, deals effectively with boundary effects and is asymptotically efficient. It also introduces a new entropy-based methodology for the determination of the optimal level of the multiresolution decomposition, as opposed to subjective or ad-hoc approaches used hitherto. As an empirical application, the paper relies on wavelet analysis to reveal the complex dynamics across different timescales for one of the most widely traded foreign exchange rates, namely the Great Britain Pound. The examined period covers the global financial crisis and the Eurozone debt crisis. The timescale analysis attempts to explore the micro-dynamics of across-scale heterogeneity in the second moment (volatility) on the basis of market agent behavior with different trading preferences and information flows across scales. New stylized properties emerge in the volatility structure and the implications for the flow of information across scales are inferred. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Stelios Bekiros, 2014. "Timescale Analysis with an Entropy-Based Shift-Invariant Discrete Wavelet Transform," Computational Economics, Springer;Society for Computational Economics, vol. 44(2), pages 231-251, August.
  • Handle: RePEc:kap:compec:v:44:y:2014:i:2:p:231-251
    DOI: 10.1007/s10614-013-9381-z
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    References listed on IDEAS

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    Cited by:

    1. Heni Boubaker, 2016. "A Comparative Study of the Performance of Estimating Long-Memory Parameter Using Wavelet-Based Entropies," Computational Economics, Springer;Society for Computational Economics, vol. 48(4), pages 693-731, December.
    2. repec:eee:phsmap:v:486:y:2017:i:c:p:947-955 is not listed on IDEAS

    More about this item

    Keywords

    Wavelets; Entropy; Exchange rates; C14; C32; C51; F31;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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