Comparison of transfer entropy methods for financial time series

Jiayi He and Pengjian Shang

Physica A: Statistical Mechanics and its Applications, 2017, vol. 482, issue C, 772-785

Abstract: There is a certain relationship between the global financial markets, which creates an interactive network of global finance. Transfer entropy, a measurement for information transfer, offered a good way to analyse the relationship. In this paper, we analysed the relationship between 9 stock indices from the U.S., Europe and China (from 1995 to 2015) by using transfer entropy (TE), effective transfer entropy (ETE), Rényi transfer entropy (RTE) and effective Rényi transfer entropy (ERTE). We compared the four methods in the sense of the effectiveness for identification of the relationship between stock markets. In this paper, two kinds of information flows are given. One reveals that the U.S. took the leading position when in terms of lagged-current cases, but when it comes to the same date, China is the most influential. And ERTE could provide superior results.

Keywords: Financial time series; Shannon entropy; Transfer entropy; Effective transfer entropy; Rényi transfer entropy; Effective Rényi transfer entropy (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:482:y:2017:i:c:p:772-785

DOI: 10.1016/j.physa.2017.04.089

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