An Entropy-Based Approach to Measurement of Stock Market Depth

The aim of this study is to investigate market depth as a stock market liquidity dimension. A new methodology for market depth measurement exactly based on Shannon information entropy for high-frequency data is introduced and utilized. The proposed entropy-based market depth indicator is supported by an algorithm inferring the initiator of a trade. This new indicator seems to be a promising liquidity measure. Both market entropy and market liquidity can be directly measured by the new indicator. The findings of empirical experiments for real-data with a time stamp rounded to the nearest second from the Warsaw Stock Exchange (WSE) confirm that the new proxy enables us to effectively compare market depth and liquidity for different equities. Robustness tests and statistical analyses are conducted. Furthermore, an intra-day seasonality assessment is provided. Results indicate that the entropy-based approach can be considered as an auspicious market depth and liquidity proxy with an intuitive base for both theoretical and empirical analyses in financial markets.     

Dynamics of Information Flow between the Chinese A-Share Market and the U.S. Stock Market: From the 2008 Crisis to the COVID-19 Pandemic Period

The relationship between the Chinese market and the US market is widely concerned by researchers and investors. This paper uses transfer entropy and local random permutation (LRP) surrogates to detect the information flow dynamics between two markets. We provide a detailed analysis of the relationship between the two markets using long-term daily and weekly data. Calculations show that there is an asymmetric information flow between the two markets, in which the US market significantly affects the Chinese market. Dynamic analysis based on weekly data shows that the information flow evolves, and includes three significant periods between 2004 and 2021. We also used daily data to analyze the dynamics of information flow in detail over the three periods and found that changes in the intensity of information flow were accompanied by major events affecting the market, such as the 2008 financial crisis and the COVID-19 pandemic period. In particular, we analyzed the impact of the S&P500 index on different industry indices in the Chinese market and found that the dynamics of information flow exhibit multiple patterns. This study reveals the complex information flow between two markets from the perspective of nonlinear dynamics, thereby helping to analyze the impact of major events and providing quantitative analysis tools for investment practice.     

Asymmetric Fractal Characteristics and Market Efficiency Analysis of Style Stock Indices

As a typical complex system, the stock market has attracted the attention of scholars and investors to comprehensively understand its fractal characteristics and analyze its market efficiency. Firstly, this paper proposes an asymmetric, detrended fluctuation analysis based on overlapping sliding windows (OSW-A-MFDFA). It reduces the generation of fluctuation errors, and the calculation results are more robust and reliable. The advantage of the OSW-A-MFDFA is that it not only can reveal the multifractal characteristics of time series clearly, but also can further accurately analyze the asymmetry of fractal characteristics under different trends. Secondly, this paper focuses on the variation in the width difference and height difference of the multifractal spectrum under different trends. Finally, based on multifractality, this paper proposes a comprehensive indicator MED that can be used to measure market efficiency, which is characterized by traversing all fluctuation orders. The application revealed many interesting findings in style stock indices. Style stock indices have asymmetric multifractal characteristics, and there are significant differences in the fractal spectrum of different style assets. Moreover, the market efficiency of style stock indices is time-varying, which can be reasonably explained from the perspective of the adaptive market hypothesis.     

An Entropy-Based Measure of Complexity: An Application in Lung-Damage

The computed tomography (CT) chest is a tool for diagnostic tests and the early evaluation of lung infections, pulmonary interstitial damage, and complications caused by common pneumonia and COVID-19. Additionally, computer-aided diagnostic systems and methods based on entropy, fractality, and deep learning have been implemented to analyse lung CT images. This article aims to introduce an Entropy-based Measure of Complexity (EMC). In addition, derived from EMC, a Lung Damage Measure (LDM) is introduced to show a medical application. CT scans of 486 healthy subjects, 263 diagnosed with COVID-19, and 329 with pneumonia were analysed using the LDM. The statistical analysis shows a significant difference in LDM between healthy subjects and those suffering from COVID-19 and common pneumonia. The LDM of common pneumonia was the highest, followed by COVID-19 and healthy subjects. Furthermore, LDM increased as much as clinical classification and CO-RADS scores. Thus, LDM is a measure that could be used to determine or confirm the scored severity. On the other hand, the d-summable information model best fits the information obtained by the covering of the CT; thus, it can be the cornerstone for formulating a fractional LDM.     

Influence of Transfer Entropy in the Short-Term Prediction of Financial Time Series Using an ∊-Machine

Predicting the values of a financial time series is mainly a function of its price history, which depends on several factors, internal and external. With this history, it is possible to build an ∊-machine for predicting the financial time series. This work proposes considering the influence of a financial series through the transfer of entropy when the values of the other financial series are known. A method is proposed that considers the transfer of entropy for breaking the ties that occur when calculating the prediction with the ∊-machine. This analysis is carried out using data from six financial series: two American, the S&P 500 and the Nasdaq; two Asian, the Hang Seng and the Nikkei 225; and two European, the CAC 40 and the DAX. This work shows that it is possible to influence the prediction of the closing value of a series if the value of the influencing series is known. This work showed that the series that transfer the most information through entropy transfer are the American S&P 500 and Nasdaq, followed by the European DAX and CAC 40, and finally the Asian Nikkei 225 and Hang Seng.     

Exploring the Relationship among Predictability,Prediction Accuracy and Data Frequency of Financial Time Series

In this paper, we aim to reveal the connection between the predictability and prediction accuracy of stock closing price changes with different data frequencies. To find out whether data frequency will affect its predictability, a new information-theoretic estimator Plz, which is derived from the Lempel–Ziv entropy, is proposed here to quantify the predictability of five-minute and daily price changes of the SSE 50 index from the Chinese stock market. Furthermore, the prediction method EEMD-FFH we proposed previously was applied to evaluate whether financial data with higher sampling frequency leads to higher prediction accuracy. It turns out that intraday five-minute data are more predictable and also have higher prediction accuracy than daily data, suggesting that the data frequency of stock returns affects its predictability and prediction accuracy, and that higher frequency data have higher predictability and higher prediction accuracy. We also perform linear regression for the two frequency data sets; the results show that predictability and prediction accuracy are positive related.     

Information Theoretic Causality Detection between Financial and Sentiment Data

The interaction between the flow of sentiment expressed on blogs and media and the dynamics of the stock market prices are analyzed through an information-theoretic measure, the transfer entropy, to quantify causality relations. We analyzed daily stock price and daily social media sentiment for the top 50 companies in the Standard & Poor (S&P) index during the period from November 2018 to November 2020. We also analyzed news mentioning these companies during the same period. We found that there is a causal flux of information that links those companies. The largest fraction of significant causal links is between prices and between sentiments, but there is also significant causal information which goes both ways from sentiment to prices and from prices to sentiment. We observe that the strongest causal signal between sentiment and prices is associated with the Tech sector.     

Using Entropy to Evaluate the Impact of Monetary Policy Shocks on Financial Networks

We analyze the changes in the financial network built using the Dow Jones Industrial Average components following monetary policy shocks. Monetary policy shocks are measured through unexpected changes in the federal funds rate in the United States. We determine the changes in the financial networks using singular value decomposition entropy and von Neumann entropy. The results indicate that unexpected positive shocks in monetary policy shocks lead to lower entropy. The results are robust to varying the window size used to construct financial networks, though they also depend on the type of entropy used.     

Market efficiency and the phase-lagging model of the price evolution

The paper presents a novel mathematical model of price evolution within the market. The model accounts for a finite time lag between the disturbance (news) and the market response to it. It follows from the model that any single disturbance brings the market out of its efficient state and the market is to come back into this state after some finite relaxation time. A quantitative measure of the market efficiency-the market efficiency coefficient-has been introduced. It has been demonstrated that a phase-lagging market is never either fully efficient or fully inefficient due to the finiteness of the frequency of disturbances (news) acting upon the market.     

Herd behaviour experimental testing in laboratory artificial stock market settings. Behavioural foundations of stylised facts of financial returns

Many scholars express concerns that herding behaviour causes excess volatility, destabilises financial markets, and increases the likelihood of systemic risk. We use a special form of the Strongly Typed Genetic Programming (STGP) technique to evolve a stock market divided into two groups—a small subset of artificial agents called ‘Best Agents’ and a main cohort of agents named ‘All Agents’. The ‘Best Agents’ perform best in term of the trailing return of a wealth moving average. We then investigate whether herding behaviour can arise when agents trade Dow Jones, General Electric, and IBM financial instruments in four different artificial stock markets. This paper uses real historical quotes of the three financial instruments to analyse the behavioural foundations of stylised facts such as leptokurtosis, non-IIDness, and volatility clustering. We found evidence of more herding in a group of stocks than in individual stocks, but the magnitude of herding does not contribute to the mispricing of assets in the long run. Our findings suggest that the price formation process caused by the collective behaviour of the entire market exhibit less herding and is more efficient than the segmented market populated by a small subset of agents. Hence, greater genetic diversity leads to greater consistency with fundamental values and market efficiency.     

An Entropy-Based Tool to Help the Interpretation of Common-Factor Spaces in Factor Analysis

This paper proposes a method for deriving interpretable common factors based on canonical correlation analysis applied to the vectors of common factors and manifest variables in the factor analysis model. First, an entropy-based method for measuring factor contributions is reviewed. Second, the entropy-based contribution measure of the common-factor vector is decomposed into those of canonical common factors, and it is also shown that the importance order of factors is that of their canonical correlation coefficients. Third, the method is applied to derive interpretable common factors. Numerical examples are provided to demonstrate the usefulness of the present approach.     

Efficiency enhancement of a two-beam free-electron laser using a nonlinearly tapered wiggler

A nonlinear and non-averaged model of a two-beam free-electron laser (FEL) wiggler that is tapered nonlinearly in the absence of slippage is presented. The two beams are assumed to have different energies, and the fundamental resonance of the higher energy beam is at the third harmonic of the lower energy beam. By using Maxwell's equations and the full Lorentz force equation of motion for the electron beams, coupled differential equations are derived and solved numerically by the fourth-order Runge-Kutta method. The amplitude of the wiggler field is assumed to decrease nonlinearly when the saturation of the third harmonic occurs. By simulation, the optimum starting point of the tapering and the slopes for reducing the wiggler amplitude are found. This technique can be applied to substantially improve the efficiency of the two-beam FEL in the XUV and X-ray regions. The effect of tapering on the dynamical stability of the fast electron beam is also studied.     

Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model

In this paper, we propose a multi-criteria decision making (MCDM) model by integrating the entropy–DEMATEL with TOPSIS model to analyze the causal relationship of financial ratios towards the financial performance of the companies. The proposed model is illustrated using the financial data of the companies of Dow Jones Industrial Average (DJIA). The financial network analysis using entropy–DEMATEL shows that the financial ratios such as debt to equity ratio (DER) and return on equity (ROE) are classified into the cause criteria group, whereas current ratio (CR), earnings per share (EPS), return on asset (ROA) and debt to assets ratio (DAR) are categorized into the effect criteria group. The top three most influential financial ratios are ROE, CR and DER. The significance of this paper is to determine the causal relationship of financial network towards the financial performance of the companies with the proposed entropy–DEMATEL–TOPSIS model. The ranking identification of the companies in this study is beneficial to the investors to select the companies with good performance in portfolio investment. The proposed model has been applied and validated in the portfolio investment using a mean-variance model based on the selection of companies with good performance. The results show that the proposed model is able to generate higher mean return than the benchmark DJIA index at minimum risk. However, short sale is not allowed for the applicability of the proposed model in portfolio investment.     

Volatility Dynamics of Non-Linear Volatile Time Series and Analysis of Information Flow: Evidence from Cryptocurrency Data

This paper aims to empirically examine long memory and bi-directional information flow between estimated volatilities of highly volatile time series datasets of five cryptocurrencies. We propose the employment of Garman and Klass (GK), Parkinson’s, Rogers and Satchell (RS), and Garman and Klass-Yang and Zhang (GK-YZ), and Open-High-Low-Close (OHLC) volatility estimators to estimate cryptocurrencies’ volatilities. The study applies methods such as mutual information, transfer entropy (TE), effective transfer entropy (ETE), and Rényi transfer entropy (RTE) to quantify the information flow between estimated volatilities. Additionally, Hurst exponent computations examine the existence of long memory in log returns and OHLC volatilities based on simple R/S, corrected R/S, empirical, corrected empirical, and theoretical methods. Our results confirm the long-run dependence and non-linear behavior of all cryptocurrency’s log returns and volatilities. In our analysis, TE and ETE estimates are statistically significant for all OHLC estimates. We report the highest information flow from BTC to LTC volatility (RS). Similarly, BNB and XRP share the most prominent information flow between volatilities estimated by GK, Parkinson’s, and GK-YZ. The study presents the practicable addition of OHLC volatility estimators for quantifying the information flow and provides an additional choice to compare with other volatility estimators, such as stochastic volatility models.     

Reliability of Financial Information from the Perspective of Benford’s Law

This study investigates the conformity to Benford’s Law of the information disclosed in financial statements. Using the first digit test of Benford’s Law, the study analyses the reliability of financial information provided by listed companies on an emerging capital market before and after the implementation of International Financial Reporting Standards (IFRS). The results of the study confirm the increase of reliability on the information disclosed in the financial statements after IFRS implementation. The study contributes to the existing literature by bringing new insights into the types of financial information that do not comply with Benford’s Law such as the amounts determined by estimates or by applying professional judgment.     

A Network Approach to the Study of the Dynamics of Risk Spillover in China’s Bond Market

Since 2018, the bond market has surpassed the stock market, becoming the biggest investment area in China’s security market, and the systemic risks of China’s bond market are of non-negligible importance. Based on daily interest rate data of representative bond categories, this study conducted a dynamic analysis based on generalized vector autoregressive volatility spillover variance decomposition, constructed a complex network, and adopted the minimum spanning tree method to clarify and analyze the risk propagation path between different bond types. It is found that the importance of each bond type is positively correlated with liquidity, transaction volume, and credit rating, and the inter-bank market is the most important market in the entire bond market, while interest rate bonds, bank bonds and urban investment bonds are important varieties with great systemic importance. In addition, the long-term trend of the dynamic spillover index of China’s bond market falls in line with the pace of the interest rate adjustments. To hold the bottom line of preventing financial systemic risks of China’s bond market, standard management, strict supervision, and timely regulation of the bond markets are required, and the structural entropy, as a useful indicator, also should be used in the risk management and monitoring.     

Double-Layer Micro Porous Media Burner from Lean to Rich Fuel Mixture: Analysis of Entropy Generation and Exergy Efficiency

Porous media burner (PMB) is widely used in a variety of practical systems, including heat exchangers, gas propulsion, reactors, and radiant burner combustion. However, thorough evaluations of the performance of the PMB based on the usefulness of entropy generation, thermal and exergy efficiency aspects are still lacking. In this work, the concept of a double-layer micro PMB with a 23 mm cylindrical shape burner was experimentally demonstrated. The PMB was constructed based on the utilization of premixed butane-air combustion which consists of an alumina and porcelain foam. The tests were designed to cover lean to rich combustion with equivalence ratios ranging from ϕ = 0.6 to ϕ = 1.2. It was found that the maximum thermal and exergy efficiency was obtained at ϕ = 1.2 while the lowest thermal and exergy efficiency was found at ϕ = 0.8. Furthermore, the findings also indicated that the total entropy generation, energy loss, and exergy destroyed yield the lowest values at ϕ = 1.0 with 0.0048 W/K, 98.084 W, and 1.456 W, respectively. These values can be stated to be the suitable operating conditions of the PMB. The findings provided useful information on the design and operation in a double-layer PMB.     

The Impact of the COVID-19 Pandemic on the Unpredictable Dynamics of the Cryptocurrency Market

The global economy is under great shock again in 2020 due to the COVID-19 pandemic; it has not been long since the global financial crisis in 2008. Therefore, we investigate the evolution of the complexity of the cryptocurrency market and analyze the characteristics from the past bull market in 2017 to the present the COVID-19 pandemic. To confirm the evolutionary complexity of the cryptocurrency market, three general complexity analyses based on nonlinear measures were used: approximate entropy (ApEn), sample entropy (SampEn), and Lempel-Ziv complexity (LZ). We analyzed the market complexity/unpredictability for 43 cryptocurrency prices that have been trading until recently. In addition, three non-parametric tests suitable for non-normal distribution comparison were used to cross-check quantitatively. Finally, using the sliding time window analysis, we observed the change in the complexity of the cryptocurrency market according to events such as the COVID-19 pandemic and vaccination. This study is the first to confirm the complexity/unpredictability of the cryptocurrency market from the bull market to the COVID-19 pandemic outbreak. We find that ApEn, SampEn, and LZ complexity metrics of all markets could not generalize the COVID-19 effect of the complexity due to different patterns. However, market unpredictability is increasing by the ongoing health crisis.     

The Causality and Uncertainty of the COVID-19 Pandemic to Bursa Malaysia Financial Services Index’s Constituents

Valued in hundreds of billions of Malaysian ringgit, the Bursa Malaysia Financial Services Index’s constituents comprise several of the strongest performing financial constituents in Bursa Malaysia’s Main Market. Although these constituents persistently reside mostly within the large market capitalization (cap), the existence of the individual constituent’s causal influence or intensity relative to each other’s performance during uncertain or even certain times is unknown. Thus, the key purpose of this paper is to identify and analyze the individual constituent’s causal intensity, from early 2018 (pre-COVID-19) to the end of the year 2021 (post-COVID-19) using Granger causality and Schreiber transfer entropy. Furthermore, network science is used to measure and visualize the fluctuating causal degree of the source and the effected constituents. The results show that both the Granger causality and Schreiber transfer entropy networks detected patterns of increasing causality from pre- to post-COVID-19 but with differing causal intensities. Unexpectedly, both networks showed that the small- and mid-caps had high causal intensity during and after COVID-19. Using Bursa Malaysia’s sub-sector for further analysis, the Insurance sub-sector rapidly increased in causality as the year progressed, making it one of the index’s largest sources of causality. Even after removing large amounts of weak causal intensities, Schreiber transfer entropy was still able to detect higher amounts of causal sources from the Insurance sub-sector, whilst Granger causal sources declined rapidly post-COVID-19. The method of using directed temporal networks for the visualization of temporal causal sources is demonstrated to be a powerful approach that can aid in investment decision making.     

Measurement of the Spectral Efficiency of a Heterogeneous Network Architecture of the NG-PON Type for a Quasilinear Propagation Regime

The objective of future optical fiber networks is to provide an efficient infrastructure capable of supporting an increasing and variable number of data traffic generated by the diversification of applications with different speed requirements that the current legacy Line Speed networks Single Line Rate (SLR), with predefined modulation formats, cannot supply, because they do not offer enough flexibility to meet the requirements of the demands with such a wide range of granularities. Therefore, next-generation optical networks will be highly heterogeneous in nature, incorporating mixed modulation formats and Mixed Line Rates (MLR). In this work, an analysis of the measurement of the spectral efficiency of a heterogeneous network architecture of the next-generation passive optical network (NG-PON) type is reported for a quasilinear propagation regime through the use of the equation adapted from Shannon’s information theory and developed by the group from the GNTT Research of the University of Cauca, where it was found that it is better to transmit channels of 10 Gbps and 40 Gbps with robust modulations in MLR networks to make an improvement in the spectral efficiency of the network, achieving the same amount of information in a smaller bandwidth or more information in the same bandwidth.