Analyzing Information Transfer Patterns in East Asian Financial Markets
School Name
Governor's School for Science and Mathematics
Grade Level
12th Grade
Presentation Topic
Physics
Presentation Type
Mentored
Oral Presentation Award
2nd Place
Abstract
This research uses statistical transfer entropy to map the strength and directionality of connections between major financial companies in South Korea, China, and Japan. A matrix of daily stock prices was compiled from the SSE 250, KOSPI 200, and NIKKEI 225 stock indices, which was then fitted to a logarithmic trend. By modeling the price curves of different companies as connected, stochastic processes and calculating the information-theoretic transfer entropy between them, this study developed a network of the connections between nodes in each country and sector. After the price trends were discretized, a sliding-window plot of transfer entropy was generated for each of the countries in the study. Companies were grouped by financial sector – banking, insurance, investment, real estate – in order to facilitate analysis of information transfer trends between sectors. The research found that compared to both China and Japan, South Korea experienced a significant increase in transfer entropy across all financial sectors. The mapping for Japan shows a spike in mid-2013 which this study attributes to massive bond purchases by the Bank of Japan. Total transfer entropy matrices (TTEs) were also generated for each country in order to compare relationships between individual companies. The most notable result displayed by the aggregate matrices was a consistently lower transfer entropy between companies of the same type (compared to those from other financial sectors).
Recommended Citation
Poston, Christopher, "Analyzing Information Transfer Patterns in East Asian Financial Markets" (2018). South Carolina Junior Academy of Science. 72.
https://scholarexchange.furman.edu/scjas/2018/all/72
Location
Neville 306
Start Date
4-14-2018 11:45 AM
Presentation Format
Oral and Written
Analyzing Information Transfer Patterns in East Asian Financial Markets
Neville 306
This research uses statistical transfer entropy to map the strength and directionality of connections between major financial companies in South Korea, China, and Japan. A matrix of daily stock prices was compiled from the SSE 250, KOSPI 200, and NIKKEI 225 stock indices, which was then fitted to a logarithmic trend. By modeling the price curves of different companies as connected, stochastic processes and calculating the information-theoretic transfer entropy between them, this study developed a network of the connections between nodes in each country and sector. After the price trends were discretized, a sliding-window plot of transfer entropy was generated for each of the countries in the study. Companies were grouped by financial sector – banking, insurance, investment, real estate – in order to facilitate analysis of information transfer trends between sectors. The research found that compared to both China and Japan, South Korea experienced a significant increase in transfer entropy across all financial sectors. The mapping for Japan shows a spike in mid-2013 which this study attributes to massive bond purchases by the Bank of Japan. Total transfer entropy matrices (TTEs) were also generated for each country in order to compare relationships between individual companies. The most notable result displayed by the aggregate matrices was a consistently lower transfer entropy between companies of the same type (compared to those from other financial sectors).
