Empirical implementation of entropy risk factor model: A test on Chilean peso

Levan Efremidze, Darrol J. Stanley, Abraham Park and Nikolai Wasilewski

Physica A: Statistical Mechanics and its Applications, 2019, vol. 532, issue C

Abstract: Currencies are used by many investors as a speculative or investment instrument. Their movements are complex and there are exchange rate models which suggest how to predict long and short-term fluctuations. In this paper we investigate the predictability of an exchange rate with an entropy risk factor model. Considering that recent studies find complex systems characteristics of financial markets, we explore the usefulness of sample entropy as a risk factor for currency fluctuations. The empirical testing of sample entropy is based on the data of the Chilean peso (CLP) exchange rate for the period of January 1, 2005 and November 25, 2016. We find evidence that Chilean peso market has enough market inefficiencies that can be profitably exploited by the sample entropy based prediction algorithm developed in this paper.

Keywords: Exchange rates; Currency trading; Market timing; Entropy; Chilean peso; USD/CLP (search for similar items in EconPapers)
JEL-codes: F31 G15 G17 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437119310842
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:532:y:2019:i:c:s0378437119310842

DOI: 10.1016/j.physa.2019.121836

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 ().