The predictive power of singular value decomposition entropy for stock market dynamics

Petre Caraiani

Physica A: Statistical Mechanics and its Applications, 2014, vol. 393, issue C, 571-578

Abstract: We use a correlation-based approach to analyze financial data from the US stock market, both daily and monthly observations from the Dow Jones. We compute the entropy based on the singular value decomposition of the correlation matrix for the components of the Dow Jones Industrial Index. Based on a moving window, we derive time varying measures of entropy for both daily and monthly data. We find that the entropy has a predictive ability with respect to stock market dynamics as indicated by the Granger causality tests.

Keywords: Correlations matrices; Stock market; Singular value decomposition; Entropy (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:393:y:2014:i:c:p:571-578

DOI: 10.1016/j.physa.2013.08.071

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