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Entropy analysis in foreign exchange markets and economic crisis

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Abstract

We investigate the relative market efficiency in 11 foreign exchange markets by using the Lempel-Ziv (LZ) complexity algorithm and several entropy values such as the Shannon entropy, the approximate entropy, and the sample entropy. With daily data in 11 foreign exchange markets from Jan. 2000 to Sep. 2011, we observe that mature markets have higher LZ complexities and entropy values than emerging markets. Furthermore, with sliding time windows, we also investigate the temporal evolutions of those entropies from Jan. 1994 to Sep. 2011, and we find that, after an economic crisis, the approximate entropy and the sample entropy of mature markets such as Japan, Europe and the United Kingdom suddenly become lower.

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Authors and Affiliations

  1. Department of Physics, Pohang University of Science and Technology, Pohang, 790-784, Korea

    Jin-Gi Ha, Kyubin Yim & Seunghwan Kim

  2. Department of Physics and Graduate Program for Technology Innovation and Management, Pohang University of Science and Technology, Pohang, 790-784, Korea

    Woo-Sung Jung

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  1. Jin-Gi Ha
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  2. Kyubin Yim
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  3. Seunghwan Kim
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  4. Woo-Sung Jung
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Correspondence to Woo-Sung Jung.

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Ha, JG., Yim, K., Kim, S. et al. Entropy analysis in foreign exchange markets and economic crisis. Journal of the Korean Physical Society 61, 638–646 (2012). https://doi.org/10.3938/jkps.61.638

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  • DOI: https://doi.org/10.3938/jkps.61.638

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