APPLICATION OF PERMUTATION ENTROPY FOR PREDICTIVE ANALYSIS CRISIS IN THE STOCK MARKET

Article Sidebar

PDF (Українська)
Keywords:
stock market, permutation entropy, pattern, crisis, precursor-indicator, time series.

Main Article Content

H. B. DANYLCHUK
V. V. SOLOVYOVA

Abstract

Introduction. The crisis is virtually unpredictable, destructive and creative phenomenon, causing a huge impact on the economy of the country, which has the crisis, and the economy of the whole world. To analyze stock indices in the form of time series, statistic modeling methods are traditionally used. However, since these time series show nonlinear behaviour, and stock markets producing these series are complex systems, traditional methods do not work. Constant monitoring of the financial and economic systems is a necessity, so there is a need for the automated methods to predict such phenomena as crises. The paper proposes the use of interdisciplinary approaches, including borrowed from physics, permutation entropy, which is a new and promising method for studying long and complicated time series. Purpose. The purpose of the article is to study the behaviour of permutation entropy in pre-crisis and crisis periods on the example of generally accepted historical chronology of the crisis on stock markets and determining an opportunity of its use as an indicator-precursor of crises. Methods. To achieve this purpose, economic-physical methods (permutation entropy) and graphic-analytical method are used. Results. The paper uses real signals, namely, the index of Dow Jones Industrial Average (DJIA) of US stock market. This rather long series was not chosen by chance, but to analyze PermEn for the different states of stock market includeing 19 officially recorded crises. This allows to consider the possibility of this indicator to detect and prevent different crises according to the cause, nature and depth. We compare the dynamic of permutation entropy and source series for different parameters. We consider the characteristic sharp drop in the values of permutation entropy in pre-crisis periods. The behaviour of entropy index is characteristic and general for the considered crises. This allows to use PermEn as an indicator-precursor of a crisis. We calculate the value of permutation entropy with other parameters. We show that a significant parameter is to choose a moving window. Originality. The authors propose and practically prove the opportunity of using permutation entropy as an indicator-precursor of crisis phenomena in stock markets. Conclusions. The obtained results of the research determine the relevance of using permutation entropy as an effective tool of monitoring the state of financial and economic systems. In particular, we consider it necessary to use permutation entropy as an indicator-precursor of crises in stock market that is shown by numerous experimental results.

Article Details

Issue
No. 3 (2016): Вісник Черкаського університету. Серія «Економічні науки»
Section
Статті

The authors published in this journal agree with following conditions:

1. The authors reserve to themselves the right to the authorship of their works and transfer the right of their first publication to the journal on the terms of Creatіve Common Attrіbutіon Lіcense which allows to freely extend to other persons the published work with an obligatory reference to the authors of the original work and its first publication in this journal.

2. The authors have the right to complete independent additional agreements concerning the not exclusive distribution of their work in the form in which it was published in this journal (for example, to place the work in the electronic storehouse of an establishment or to publish as a monograph component), under the condition of the preservation of the reference to the first publication of the work in this journal.

3. The journal’s policy allows and encourage the authors to place their manuscripts into the Internet (for example, in depositories of establishments or on personal web-sites) either before submitting of the manuscript for publication or during its editorial processing as it assists the occurrence of a productive scientific discussion and positively affects the efficiency and dynamics of citing of the published work.

 

AGREEMENT
ABOUT TRANSMISSION OF COPYRIGHT
 
I, the author of the article / We, the authors of the manuscript _______________________________________________________________________
in case of its acceptance for publication, we transfer the following rights to the founders and editorial boards of the scientific publication "BULLETIN OF THE CHERKASY BOHDAN KHMELNYTSKY NATIONAL UNIVERSITY. ECONOMIC SCIENCES. SERIES "ECONOMIC SCIENCES":
1. Publication of this article in Ukrainian (English, Russian, Polish) and distribution of its printed version.
2. Dissemination of the electronic version of the article through any electronic means (placing on the official journal web site, in electronic databases, repositories, etc.).
At the same time we reserve the right without consent of the editorial board and the founders:
1. Use the materials of the article in whole or in part for educational purposes.
2. To use the materials of the article in whole or in part for writing your own theses.
3. Use article materials to prepare abstracts, conference reports, and oral presentations.
4. Post electronic copies of the article (including the final electronic version downloaded from the journal's official website) to:
a. personal web-pecypcax of all authors (web sites, web pages, blogs, etc.);
b. web-pecypcax of the institutions where the authors work (including electronic institutional repositories);
with. non-profit, open-source web-pecypcax (such as arXiv.org).
With this agreement, we also certify that the submitted manuscript meets the following criteria:
1. Does not contain calls for violence, incitement of racial or ethnic enmity, which are disturbing, threatening, shameful, libelous, cruel, indecent, vulgar, etc.
2. Does not infringe the copyrights and intellectual property rights of others or organizations; contains all the references to the cited authors and / or publications envisaged by applicable copyright law, as well as the results and facts used in the article by other authors or organizations.
3. It has not been previously published in other publishers and has not been published in other publications.
4. Does not include materials that are not subject to publication in the open press, in accordance with applicable law.
____________________ ___________________
First name, Last name,  signature of the author
"___" __________ 20__

 

References

Bandt, C.and B. Pompe (2002). «Permutation entropy: A natural complexity measure for time series». PhysicalReview Letters 88(17): 174102.

Veisi, I., Pariz, N., Karimpour, A. (2007). Fast and Robust Detection of Epilepsy in Noisy BEG Signals UsingPermutation Entropy. 7th IEEE International Conference on Bioinformatics and Bioengineering.

Danylchuk, H., & Lukyanchuk, O., & Soloviev, V. (2013). Entropy analysis of the global banking system.Cherkasy : Brama-Ukraine (in Ukr).

Avilov O., Popov A., & Kanaikin O. (2013). Permutation entropy of EEG signals for different sampling rateand time lag combinations. SPS-2013, 5-7 June 2013.: proceedings. – Warsaw, 2013. – ISBN 978-1-4673-6318-1

Avilov, O. O. Borovskyi, I. I., Zhukov, M. A., Ivanko, K. O., Popov, A. A. & Fesechko, V. A. (2013).«Permutation entropy of fetal heart rate with extraction of maternal heartbeats». Electronics andCommunications 5(76), 43-48.

Retrieved from http://finance.yahoo.com.