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Open AccessArticle

An Intrinsic Entropy Model for Exchange-Traded Securities

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Department of Economic Informatics and Cybernetics, Bucharest University of Economic Studies, 15–17 Calea Dorobanților, 010552 Bucharest, Romania
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School of Business, Brookfield, University of Leicester, Leicester LE2 7RQ, UK
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GRAPES, 483 rue de la Belle Jardiniere, B-4031 Liege, Belgium
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Author to whom correspondence should be addressed.
Entropy 2019, 21(12), 1173; https://doi.org/10.3390/e21121173
Received: 21 October 2019 / Revised: 21 November 2019 / Accepted: 25 November 2019 / Published: 29 November 2019
(This article belongs to the Special Issue Disordered Systems, Fractals and Chaos)
This paper introduces an intrinsic entropy model which can be employed as an indicator for gauging investors’ interest in a given exchange-traded security, along with the state of the overall market corroborated by individual security trading data. Although the syntagma of intrinsic entropy might sound somehow pleonastic, since entropy itself characterizes the fundamentals of a system, we would like to make a clear distinction between entropy models based on the values that a random variable may take, and the model that we propose, which employs actual stock exchange trading data. The model that we propose for the intrinsic entropy does not include any exogenous factor that could influence the level of entropy. The intrinsic entropy signals if the market is either inclined to buy the security or rather to sell it. We further explore the usage of the intrinsic entropy model for algorithmic trading, in order to demonstrate the value of our model in assisting investors’ intraday stock portfolio selection, along with timely generated signals for supporting the buy/sell decision-making process. The test results provide empirical evidence that the proposed intrinsic entropy model can be used as an indicator for evaluating the direction and the intensity of intraday trading activity of an exchange-traded security. The data employed for testing consisted of historical intraday transactions executed on The Bucharest Stock Exchange (BVB). View Full-Text
Keywords: intrinsic entropy; exchange-traded securities; buy/sell signals; stock market entropy map intrinsic entropy; exchange-traded securities; buy/sell signals; stock market entropy map
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Vințe, C.; Smeureanu, I.; Furtună, T.-F.; Ausloos, M. An Intrinsic Entropy Model for Exchange-Traded Securities. Entropy 2019, 21, 1173.

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