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Entropy 2017, 19(6), 244; doi:10.3390/e19060244

The Tale of Two Financial Crises: An Entropic Perspective

1
Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC V5A 1S6, Canada
2
Department of Economics and Finance, College of Business and Economics, University of Guelph, 50 Stone Road East, Guelph, ON N1G 2W1, Canada
3
IÉSEG School of Management (LEM-CNRS), Lille 59000, France
4
Faculty of Technical Sciences, University of Novi Sad, Novi Sad 21000, Serbia
*
Author to whom correspondence should be addressed.
Academic Editors: Michael (Mike) Stutzer and Stelios Bekiros
Received: 18 April 2017 / Revised: 12 May 2017 / Accepted: 19 May 2017 / Published: 24 May 2017
(This article belongs to the Special Issue Entropic Applications in Economics and Finance)
View Full-Text   |   Download PDF [351 KB, uploaded 24 May 2017]   |  

Abstract

This paper provides a comparative analysis of stock market dynamics of the 1987 and 2008 financial crises and discusses the extent to which risk management measures based on entropy can be successful in predicting aggregate market expectations. We find that the Tsallis entropy is more appropriate for the short and sudden market crash of 1987, while the approximate entropy is the dominant predictor of the prolonged, fundamental crisis of 2008. We conclude by suggesting the use of entropy as a market sentiment indicator in technical analysis. View Full-Text
Keywords: financial crisis; market sentiment; technical trading; risk management; entropy financial crisis; market sentiment; technical trading; risk management; entropy
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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. (CC BY 4.0).

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Gençay, R.; Gradojevic, N. The Tale of Two Financial Crises: An Entropic Perspective. Entropy 2017, 19, 244.

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