SCIENCE@home

Characterizing Complexity Changes in Chinese Stock Markets by Permutation Entropy

Yunfei Hou,Feiyan Liu,Jianbo Gao,Changxiu Cheng,Changqing Song

Published 2017 in Entropy

ABSTRACT

Financial time series analyses have played an important role in developing some of the fundamental economic theories. However, many of the published analyses of financial time series focus on long-term average behavior of a market, and thus shed little light on the temporal evolution of a market, which from time to time may be interrupted by stock crashes and financial crises. Consequently, in terms of complexity science, it is still unknown whether the market complexity during a stock crash decreases or increases. To answer this question, we have examined the temporal variation of permutation entropy (PE) in Chinese stock markets by computing PE from high-frequency composite indies of two stock markets: the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). We have found that PE decreased significantly in two significant time windows, each encompassing a rapid market rise and then a few gigantic stock crashes. One window started in the middle of 2006, long before the 2008 global financial crisis, and continued up to early 2011. The other window was more recent, started in the middle of 2014, and ended in the middle of 2016. Since both windows were at least one year long, and proceeded stock crashes by at least half a year, the decrease in PE can be invaluable warning signs for regulators and investors alike.

PUBLICATION RECORD

  • Publication year

    2017

  • Venue

    Entropy

  • Publication date

    2017-09-24

  • Fields of study

    Mathematics, Computer Science, Economics

  • Identifiers
    DOI 10.3390/e19100514
  • External record

    Open on Semantic Scholar

  • Source metadata

    Semantic Scholar

CITATION MAP

EXTRACTION MAP

CLAIMS

  • No claims are published for this paper.

CONCEPTS

  • No concepts are published for this paper.

REFERENCES

Showing 1-76 of 76 references · Page 1 of 1

CITED BY

Showing 1-38 of 38 citing papers · Page 1 of 1