A temporal information transfer network approach considering federal funds rate for an interpretable asset fluctuation prediction framework

Insu Choi and Woo Chang Kim

International Review of Economics & Finance, 2024, vol. 96, issue PA

Abstract: This study explores the complex interdependencies among five major financial assets—S&P 500, Bitcoin, Crude Oil, Gold, and USD/EUR—from April 2015 to September 2022, emphasizing the importance of understanding global financial dynamics for robust financial management. We quantitatively analyze daily causal relationships using conditional transfer entropy, a method that surpasses traditional correlation analyses. By incorporating the effective federal funds rate into our models, we enhance predictive accuracy and account for monetary policy impacts, ensuring our findings are relevant to current economic conditions. Our results reveal significant causal networks, providing key insights into asset interdependencies that support advanced hedging strategies and effective diversification. This research improves prediction models through the innovative use of network-based features and offers practical strategies for managing multinational financial assets, with relevance across various economic scenarios.

Keywords: Financial market analysis; Information flow; Conditional transfer entropy; Financial index; Network analysis; Explainable framework in finance (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:96:y:2024:i:pa:s1059056024005549

DOI: 10.1016/j.iref.2024.103562

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