Forbidden patterns, permutation entropy and stock market inefficiency

Title: Forbidden patterns, permutation entropy and stock market inefficiency
Creator: Zunino, Luciano; Zanin, Massimiliano; Tabak, Benjamin M.; Pérez, Darío G.; Rosso, Osvaldo A.
Relation: Physica A: Statistical Mechanics and Its Applications Vol. 388, Issue 14, p. 2854-2864
Publisher Link: http://dx.doi.org/10.1016/j.physa.2009.03.042
Publisher: Elsevier
Resource Type: journal article
Date: 2009
Description: 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.
Subject: forbidden patterns; permutation entropy; stock market inefficiency
Identifier: uon:7784
Identifier: http://hdl.handle.net/1959.13/808924
Identifier: ISSN:0378-4371
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