Information Theory and Market Behavior

Jing Chen ()

Finance from University Library of Munich, Germany

Abstract: Some recent empirical works indicate that investor performance and market patterns are primarily information driven instead of a behavioral phenomenon. However, Grossman and Stiglitz information theory and its variations offer little guidance in identifying informed investors and in distinguishing between securities with scarce information and those with widely available information. We show that most empirical evidences about market behaviors documented in the literature can be explained by a new information theory generalized from Shannon’s entropy theory of information. Investor performance and market patterns are the results of information processing by investors of different sizes with different background knowledge.

Keywords: information; entropy; market patterns; behavioral finance (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Pages: 26 pages
Date: 2005-03-10
Note: Type of Document - pdf; pages: 26
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0503/0503009.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0503009

Access Statistics for this paper

More papers in Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).