Applying approximate entropy (ApEn) to speculative bubble in the stock market
In contrast to the traditional duration dependence test, the paper introduces an order statistic known as Approximate Entropy to investigate the presence of speculative bubbles for a cross country sample. Using Approximate Entropy, the article examines four major crash in the US, Japan, Hong Kong and India. In addition, the paper also investigate the 1997 Asian crisis using weekly data for seven major Asian indices which includes Hong Kong, Malaysia, Singapore, Korea, Taiwan, Indonesia and Japan. The results confirm that there are strong “tale-tell” signs characterized by low Approximate Entropy (ApEn) level during many of these crash events. All the evidences using yearly as well as time series data (both discrete and rolling window analysis) point to a substantially lower level of ApEn during the crash.
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