Transfer Entorpy within the Nasdaq Stock Exchange
School Name
Governor's School for Science & Mathematics
Grade Level
12th Grade
Presentation Topic
Consumer Science
Presentation Type
Mentored
Written Paper Award
2nd Place
Abstract
Using Transfer Entropy, we attempt to compare information flow between varying industries and the economy as a whole through studying 153 companies in the NASDAQ Stock Exchange and the NASDAQ Composite as an economic indicator. Transfer Entropy provides a model-free approach to detect asymmetrical statistic dependencies and correlations allowing us to calculate both the magnitude and direction of information flow. A delay variable is introduced to determine which industries tend to lead mass movements in the stock market, as well as to characterize the duration of influence leading these movements. Using a time series from 1 January 2000 to 20 July 2016, we perform a time-series analysis between each individual company and the NASDAQ Composite. Our data suggests that the consumer durables and finance industries provide the most information concerning the economy as a whole. Using a one-day delay, we find that introducing a delay variable significantly increases Transfer Entropy of all industries aside from energy, with technology having the most significant increase (103%), compared to the average (28%). After a one-day delay, we find that additional delay decreases Transfer Entropy generally, but not monotonically, suggesting that movements are mostly influenced by two-day trends. The introduction of a delay variable to studying information flow allows us to expand the applications of Transfer Entropy in econophysics, specifically the ability to determine not only magnitude and direction, but also duration. From this, we are able to better understand what leads market movements such as the 2009 global financial crisis.
Recommended Citation
Rummel, Caleb, "Transfer Entorpy within the Nasdaq Stock Exchange" (2017). South Carolina Junior Academy of Science. 76.
https://scholarexchange.furman.edu/scjas/2017/all/76
Location
Wall 210
Start Date
3-25-2017 10:00 AM
Presentation Format
Oral and Written
Group Project
No
Transfer Entorpy within the Nasdaq Stock Exchange
Wall 210
Using Transfer Entropy, we attempt to compare information flow between varying industries and the economy as a whole through studying 153 companies in the NASDAQ Stock Exchange and the NASDAQ Composite as an economic indicator. Transfer Entropy provides a model-free approach to detect asymmetrical statistic dependencies and correlations allowing us to calculate both the magnitude and direction of information flow. A delay variable is introduced to determine which industries tend to lead mass movements in the stock market, as well as to characterize the duration of influence leading these movements. Using a time series from 1 January 2000 to 20 July 2016, we perform a time-series analysis between each individual company and the NASDAQ Composite. Our data suggests that the consumer durables and finance industries provide the most information concerning the economy as a whole. Using a one-day delay, we find that introducing a delay variable significantly increases Transfer Entropy of all industries aside from energy, with technology having the most significant increase (103%), compared to the average (28%). After a one-day delay, we find that additional delay decreases Transfer Entropy generally, but not monotonically, suggesting that movements are mostly influenced by two-day trends. The introduction of a delay variable to studying information flow allows us to expand the applications of Transfer Entropy in econophysics, specifically the ability to determine not only magnitude and direction, but also duration. From this, we are able to better understand what leads market movements such as the 2009 global financial crisis.
Mentor
Mentor: Kyuseong Lim, Korea Advanced Institute of Science and Technology