Forbidden patterns, permutation entropy and stock market inefficiency

Luciano Zunino, Massimiliano Zanin, Benjamin Tabak, Darío G. Pérez and Osvaldo A. Rosso

Physica A: Statistical Mechanics and its Applications, 2009, vol. 388, issue 14, 2854-2864

Abstract: In this paper we introduce two new quantifiers for the stock market inefficiency: the number of forbidden patterns and the normalized permutation entropy. They are model-independent measures, thus they have more general applicability. We find robust evidence that degree of market inefficiency is positively correlated with the number of forbidden patterns and negatively correlated with the permutation entropy. Our empirical results suggest that these two physical tools are useful to discriminate the stage of stock market development and can be easily implemented.

Keywords: Forbidden patterns; Permutation entropy; Stock market inefficiency (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437109002593
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

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:eee:phsmap:v:388:y:2009:i:14:p:2854-2864

DOI: 10.1016/j.physa.2009.03.042

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().