Mutual information: a dependence measure for nonlinear time series

Andreia Dionisio, Rui Menezes () and Diana A. Mendes
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Diana A. Mendes: ISCTE

Econometrics from University Library of Munich, Germany

Abstract: This paper investigates the possibility to analyse the structure of unconditional or conditional (and possibly nonlinear) dependence in financial returns without requiring the specification of mean-variance models or a theoretical probability distribution. The main goal of the paper is to show how mutual information can be used as a measure of dependence in financial time series. One major advantage of this approach resides precisely in its ability to account for nonlinear dependencies with no need to specify a theoretical probability distribution or use of a mean-variance model.

Keywords: Mutual information; nonlinear dependence; market efficiency (search for similar items in EconPapers)
JEL-codes: C1 C2 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2003-11-11
Note: Type of Document - Acrobat PDF; prepared on Win98; pages: 36; figures: 4. 36 pages, 4 figures, 21 tables
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpem:0311003

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