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Modeling the Comovement of Entropy between Financial Markets

Institute for Economic Forecasting, Romanian Academy, 050711 Bucharest, Romania
Entropy 2018, 20(6), 417; https://doi.org/10.3390/e20060417
Received: 9 May 2018 / Revised: 24 May 2018 / Accepted: 29 May 2018 / Published: 30 May 2018
(This article belongs to the Section Statistical Physics)
In this paper, I propose a methodology to study the comovement between the entropy of different financial markets. The entropy is derived using singular value decomposition of the components of stock market indices in financial markets from selected developed economies, i.e., France, Germany, the United Kingdom, and the United States. I study how a shock in the entropy in the United States affects the entropy in the other financial markets. I also model the entropy using a dynamic factor model and derive a common factor behind the entropy movements in these four markets. View Full-Text
Keywords: entropy; financial markets; comovement entropy; financial markets; comovement
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Caraiani, P. Modeling the Comovement of Entropy between Financial Markets. Entropy 2018, 20, 417.

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