Phase-transition-like behaviour of information measures

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Abstract

We apply measures based on information theory to the analysis of day close equity prices traded on US stock markets over the 13-year interval from 1995 up until after the market crash of September 2008. We show that the mutual information between prices provides insight into the changing relationships between equities over a time period which includes three known market crashes and two events which have not previously been included in this type of study, one of which is related to the sub-prime meltdown starting in 2007. Specifically, the mutual information around market crashes shows behaviour typical of the phase transitions studied in condensed-matter physics, however similar but more extended peaks in mutual information are also observed at other times not associated with any known market crashes.
Original languageEnglish
Pages (from-to)1-5
Number of pages5
JournalEurophysics Letters
Volume87
Issue number1
DOIs
Publication statusPublished - Jul 2009

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