Market Efficiency, Roughness and Long Memory in the PSI20 Index Returns: Wavelet and Entropy Analysis
In this study, features of financial returns of PSI20 index, related to market efficiency, are captured using wavelet and entropy based techniques. This characterization includes the following points. First, the detection of long memory, associated to low frequencies, and a global measure of the time series: the Hurst exponent estimated by several methods including wavelets. Second, the degree of roughness, or regularity variation, associated to the Hölder exponent, fractal dimension and estimation based on multifractal spectrum. Finally, the degree of the unpredictability of the series, estimated by approximate entropy. These aspects may also be studied through the concepts of non-extensive entropy and distribution using, for instance, the Tsallis q-triplet. They allow to study the existence of efficiency in the nancial market. On the other hand, the study of local roughness is performed by considering wavelet leaders based entropy. In fact, the wavelet coefficients are computed from a multiresolution analysis, and the wavelet leaders are defined by the local suprema of these coefficients, near the point we are considering. The resulting entropy is more accurate in that detection than the Hölder exponent. These procedures enhance the capacity to identify the occurrence of financial crashes.
|Date of creation:||Dec 2013|
|Date of revision:|
|Publication status:||Published in Entropy 16: 2768-2788, 2014.|
|Contact details of provider:|| Postal: Av. Dias da Silva, 165, 3004-512 COIMBRA|
Phone: + 351 239 790 500
Fax: +351 239 403511
Web page: http://www.uc.pt/en/feuc/gemf/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tsallis, Constantino, 2004. "Dynamical scenario for nonextensive statistical mechanics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 340(1), pages 1-10.
- Lo, Andrew W, 1991.
"Long-Term Memory in Stock Market Prices,"
Econometric Society, vol. 59(5), pages 1279-313, September.
- Tom Doan, . "RSSTATISTIC: RATS procedure to compute R/S Statistic (classical or Lo's modified)," Statistical Software Components RTS00191, Boston College Department of Economics.
- Andrew W. Lo, 1989. "Long-term Memory in Stock Market Prices," NBER Working Papers 2984, National Bureau of Economic Research, Inc.
- Lo, Andrew W. (Andrew Wen-Chuan), 1989. "Long-term memory in stock market prices," Working papers 3014-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- S. M.D. Queirós & L. G. Moyano & J. de Souza & C. Tsallis, 2007. "A nonextensive approach to the dynamics of financial observables," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 55(2), pages 161-167, 01.
- Cortines, A.A.G. & Riera, R., 2007. "Non-extensive behavior of a stock market index at microscopic time scales," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 377(1), pages 181-192.
- Ladislav Kristoufek & Miloslav Vosvrda, 2012.
"Measuring capital market efficiency: Global and local correlations structure,"
- Kristoufek, Ladislav & Vosvrda, Miloslav, 2013. "Measuring capital market efficiency: Global and local correlations structure," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(1), pages 184-193.
- Ferri, G.L. & Reynoso Savio, M.F. & Plastino, A., 2010. "Tsallis’ q-triplet and the ozone layer," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(9), pages 1829-1833.
When requesting a correction, please mention this item's handle: RePEc:gmf:wpaper:2013-27.. See general 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: (Sara Santos)
If references are entirely missing, you can add them using this form.