Expecting the Unexpected: Entropy and Multifractal Systems in Finance
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27240%2F23%3A10254762" target="_blank" >RIV/61989100:27240/23:10254762 - isvavai.cz</a>
Alternative codes found
RIV/61989100:27740/23:10254762
Result on the web
<a href="https://www.mdpi.com/1099-4300/25/11/1527" target="_blank" >https://www.mdpi.com/1099-4300/25/11/1527</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.3390/e25111527" target="_blank" >10.3390/e25111527</a>
Alternative languages
Result language
angličtina
Original language name
Expecting the Unexpected: Entropy and Multifractal Systems in Finance
Original language description
Entropy serves as a measure of chaos in systems by representing the average rate of information loss about a phase point's position on the attractor. When dealing with a multifractal system, a single exponent cannot fully describe its dynamics, necessitating a continuous spectrum of exponents, known as the singularity spectrum. From an investor's point of view, a rise in entropy is a signal of abnormal and possibly negative returns. This means he has to expect the unexpected and prepare for it. To explore this, we analyse the New York Stock Exchange (NYSE) U.S. Index as well as its constituents. Through this examination, we assess their multifractal characteristics and identify market conditions (bearish/bullish markets) using entropy, an effective method for recognizing fluctuating fractal markets. Our findings challenge conventional beliefs by demonstrating that price declines lead to increased entropy, contrary to some studies in the literature that suggest that reduced entropy in market crises implies more determinism. Instead, we propose that bear markets are likely to exhibit higher entropy, indicating a greater chance of unexpected extreme events. Moreover, our study reveals a power-law behaviour and indicates the absence of variance.
Czech name
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Czech description
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Classification
Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
10300 - Physical sciences
Result continuities
Project
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Continuities
S - Specificky vyzkum na vysokych skolach
Others
Publication year
2023
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Entropy
ISSN
1099-4300
e-ISSN
1099-4300
Volume of the periodical
25
Issue of the periodical within the volume
11
Country of publishing house
CH - SWITZERLAND
Number of pages
18
Pages from-to
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UT code for WoS article
001107906400001
EID of the result in the Scopus database
2-s2.0-85178127586