Journal
PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS
Volume 388, Issue 14, Pages 2854-2864Publisher
ELSEVIER
DOI: 10.1016/j.physa.2009.03.042
Keywords
Forbidden patterns; Permutation entropy; Stock market inefficiency
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Funding
- Consejo Nacional de Investigaciones Cientificas y Tecnicas (CONICET), Argentina
- CNPq foundation
- Comision Nacional de lnvestigacion Cientifica y Tecnologica (CONICYT, FONDECYT), Chile [11060512]
- Pontificia Universidad Catolica de Valparaiso (PUCV) [123.788/2007]
- Australian Research Council (ARC) Centre of Excellence in Bioinformatics, Australia
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In this paper we introduce two new quantifiers for the stock market inefficiency: the number of forbidden patterns and the normalized permutation entropy. They are model-independent measures, thus they have more general applicability. We find robust evidence that degree of market inefficiency is positively correlated with the number of forbidden patterns and negatively correlated with the permutation entropy. Our empirical results suggest that these two physical tools are useful to discriminate the stage of stock market development and can be easily implemented. (C) 2009 Elsevier B.V. All rights reserved.
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