Multiscale Shannon entropy and its application in the stock market

Rongbao Gu

Physica A: Statistical Mechanics and its Applications, 2017, vol. 484, issue C, 215-224

Abstract: In this paper, we perform a multiscale entropy analysis on the Dow Jones Industrial Average Index using the Shannon entropy. The stock index shows the characteristic of multi-scale entropy that caused by noise in the market. The entropy is demonstrated to have significant predictive ability for the stock index in both long-term and short-term, and empirical results verify that noise does exist in the market and can affect stock price. It has important implications on market participants such as noise traders.

Keywords: Stock market; Prediction; Singular value decomposition; Multi-scale Shannon entropy (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:484:y:2017:i:c:p:215-224

DOI: 10.1016/j.physa.2017.04.164

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