Entropy and Stock Market Efficiency During Crises
Author Information
Author(s): Daniel Papla, Rafał Siedlecki
Primary Institution: Wroclaw University of Economics and Business
Hypothesis
In periods of economic slowdown and economic crises, the entropy of prices and return rates decreases.
Conclusion
The study confirms that stock market entropy decreases during crises, indicating reduced market efficiency.
Supporting Evidence
- Entropy decreases during financial crises, indicating lower market efficiency.
- The study analyzed data from 2007 to 2023, covering multiple crisis periods.
- Results showed significant entropy drops during the COVID-19 pandemic.
- Different markets exhibited varying responses to crises in terms of entropy changes.
Takeaway
When bad things happen, like a financial crisis, the way stock prices move becomes less random, making it harder to predict them.
Methodology
The study used the Shannon entropy method to analyze stock market data from 2007 to 2023 across various global markets.
Limitations
The study may not account for all external factors influencing market efficiency during crises.
Participant Demographics
The analysis included stock market indices from 43 countries.
Digital Object Identifier (DOI)
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