The Entropic Linkage between Equity and Bond Market Dynamics
AbstractAn alternative derivation of the yield curve based on entropy or the loss of information as it is communicated through time is introduced. Given this focus on entropy growth in communication the Shannon entropy will be utilized. Additionally, Shannon entropy’s close relationship to the Kullback–Leibler divergence is used to provide a more precise understanding of this new yield curve. The derivation of the entropic yield curve is completed with the use of the Burnashev reliability function which serves as a weighting between the true and error distributions. The deep connections between the entropic yield curve and the popular Nelson–Siegel specification are also examined. Finally, this entropically derived yield curve is used to provide an estimate of the economy’s implied information processing ratio. This information theoretic ratio offers a new causal link between bond and equity markets, and is a valuable new tool for the modeling and prediction of stock market behavior. View Full-Text
- Supplementary File 1:
Supplementary (XLSM, 2071 KB)
Scifeed alert for new publicationsNever miss any articles matching your research from any publisher
- Get alerts for new papers matching your research
- Find out the new papers from selected authors
- Updated daily for 49'000+ journals and 6000+ publishers
- Define your Scifeed now
Parker, E. The Entropic Linkage between Equity and Bond Market Dynamics. Entropy 2017, 19, 292.
Parker E. The Entropic Linkage between Equity and Bond Market Dynamics. Entropy. 2017; 19(6):292.Chicago/Turabian Style
Parker, Edgar. 2017. "The Entropic Linkage between Equity and Bond Market Dynamics." Entropy 19, no. 6: 292.
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.