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Information entropy and measures of market risk

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Pele, D. T., Lazar, E. orcid id iconORCID: https://orcid.org/0000-0002-8761-0754 and Dufour, A. orcid id iconORCID: https://orcid.org/0000-0003-0519-648X (2017) Information entropy and measures of market risk. Entropy, 19 (5). 226. ISSN 1099-4300 doi: 10.3390/e19050226

Abstract/Summary

In this paper we investigate the relationship between the information entropy of the distribution of intraday returns and intraday and daily measures of market risk. Using data on the EUR/JPY exchange rate, we find a negative relationship between entropy and intraday Value-at-Risk, and also between entropy and intraday Expected Shortfall. This relationship is then used to forecast daily Value-at-Risk, using the entropy of the distribution of intraday returns as a predictor.

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Item Type Article
URI https://reading-clone.eprints-hosting.org/id/eprint/70371
Identification Number/DOI 10.3390/e19050226
Refereed Yes
Divisions Henley Business School > Finance and Accounting
Publisher MDPI Publishing
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