Next Article in Journal
Previous Article in Journal
Entropy 2014, 16(5), 2768-2788; doi:10.3390/e16052768
Article

Market Efficiency, Roughness and Long Memory in PSI20 Index Returns: Wavelet and Entropy Analysis

 and *
Received: 21 March 2014; in revised form: 8 May 2014 / Accepted: 9 May 2014 / Published: 19 May 2014
View Full-Text   |   Download PDF [417 KB, uploaded 19 May 2014]   |   Browse Figures
Abstract: In this study, features of the financial returns of the PSI20index, related to market efficiency, are captured using wavelet- and entropy-based techniques. This characterization includes the following points. First, the detection of long memory, associated with low frequencies, and a global measure of the time series: the Hurst exponent estimated by several methods, including wavelets. Second, the degree of roughness, or regularity variation, associated with the H¨older exponent, fractal dimension and estimation based on the multifractal spectrum. Finally, the degree of the unpredictability of the series, estimated by approximate entropy. These aspects may also be studied through the concepts of non-extensive entropy and distribution using, for instance, the Tsallis q-triplet. They allow one to study the existence of efficiency in the financial market. On the other hand, the study of local roughness is performed by considering wavelet leader-based entropy. In fact, the wavelet coefficients are computed from a multiresolution analysis, and the wavelet leaders are defined by the local suprema of these coefficients, near the point that we are considering. The resulting entropy is more accurate in that detection than the H¨older exponent. These procedures enhance the capacity to identify the occurrence of financial crashes.
Keywords: efficiency; long memory; fractal dimension; unpredictability; q-triplet; entropy; wavelets efficiency; long memory; fractal dimension; unpredictability; q-triplet; entropy; wavelets
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Export to BibTeX |
EndNote


MDPI and ACS Style

Pascoal, R.; Monteiro, A.M. Market Efficiency, Roughness and Long Memory in PSI20 Index Returns: Wavelet and Entropy Analysis. Entropy 2014, 16, 2768-2788.

AMA Style

Pascoal R, Monteiro AM. Market Efficiency, Roughness and Long Memory in PSI20 Index Returns: Wavelet and Entropy Analysis. Entropy. 2014; 16(5):2768-2788.

Chicago/Turabian Style

Pascoal, Rui; Monteiro, Ana M. 2014. "Market Efficiency, Roughness and Long Memory in PSI20 Index Returns: Wavelet and Entropy Analysis." Entropy 16, no. 5: 2768-2788.


Entropy EISSN 1099-4300 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert