Who dominate the information flowing between innovative and traditional financial assets? A multiscale entropy-based approach

Yang Zhou, Chi Xie, Gang-Jin Wang, Jue Gong, Zhao-Chen Li and You Zhu

International Review of Economics & Finance, 2024, vol. 93, issue PB, 329-358

Abstract: We investigate the interactions between innovative financial assets (e.g., FinTech-related stocks, green bonds, and cryptocurrencies) and traditional ones (e.g., global equities, gold, crude oil, U.S. dollar, and government bonds) at short-, medium-, and long-time scales by adopting the multiscale entropy-based approach, through which the dominant influencers in information flowing are identified. Also, we discuss the impact of unprecedented events exemplified by the COVID-19 pandemic. Further, we propose the high-transfer-entropy trading strategy that considers the dominant influencers. The empirical results show that (i) the information exchange is heterogenous at three time scales, with the greatest intensity at short-time scale; (ii) no isolated dominant influencer is discovered, and the traditional assets are stronger influencers in long term while the innovative assets are more influential in short and medium terms; (iii) the COVID-19 pandemic alters the magnitude and direction of information transfer, during which the influence of innovative assets relative to traditional assets enhances evidently; and (iv) the high-transfer-entropy strategy can effectively provide the investor with excess returns.

Keywords: Digital financial assets; Green financial assets; Information flowing; Entropy; Multi-time scale analysis (search for similar items in EconPapers)
JEL-codes: C4 G11 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:93:y:2024:i:pb:p:329-358

DOI: 10.1016/j.iref.2024.04.027

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