A new vision about the influence of major stock markets in CEEC indices: a bidirectional dynamic analysis using transfer entropy

Ferreira, Paulo; Dionísio, Andreia; Almeida, Dora; Quintino, Derick David; Aslam, Faheem

doi:10.1080/14631377.2021.2006498

Cited by 9 publications

(4 citation statements)

References 28 publications

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“…The results received in Table 3 for the COVID-19 period indicate that the contemporaneous correlations between the US and other stock exchanges (except UKX) were higher than during the pre-COVID-19 period; however, the differences were low. These results provide support for the theory of Ferreira, Dionísio, Almeida, Quintino, and Aslam [ 31 ] that the pandemic crisis may be a factor for the intensification of US indices. Similar results were obtained in the study by Czech, Wielechowski, Kotyza, Benešová, and Laputková [ 17 ] and Aslam et al [ 53 ], who emphasize that the COVID-19 pandemic caused great impacts on CEE stock markets.…”

Section: Resultssupporting

confidence: 86%

“…Barbi and Prataviera [ 21 ] study nonlinear dependencies on the Brazilian equity network and underline the particular benefit of mutual information network analysis to identify the characteristics of financial markets due to nonlinear relationships. Ferreira, Dionísio, Almeida, Quintino, and Aslam [ 31 ] review the influential dynamics of CEE stock indices as well as US, German, UK, and Chinese indices and find strongly influential correlations between some CEE indices and the impactful character of the US index. They argue that the COVID-19 pandemic could intensify the influence of Chinese and US indices.…”

Section: Literature Reviewmentioning

confidence: 99%

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Linear and Nonlinear Effects in Connectedness Structure: Comparison between European Stock Markets

Karkowska

Urjasz

2022

Entropy

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The purpose of this research is to compare the risk transfer structure in Central and Eastern European and Western European stock markets during the 2007–2009 financial crisis and the COVID-19 pandemic. Similar to the global financial crisis (GFC), the spread of coronavirus (COVID-19) created a significant level of risk, causing investors to suffer losses in a very short period of time. We use a variety of methods, including nonstandard like mutual information and transfer entropy. The results that we obtained indicate that there are significant nonlinear correlations in the capital markets that can be practically applied for investment portfolio optimization. From an investor perspective, our findings suggest that in the wake of global crisis and pandemic outbreak, the benefits of diversification will be limited by the transfer of funds between developed and developing country markets. Our study provides an insight into the risk transfer theory in developed and emerging markets as well as a cutting-edge methodology designed for analyzing the connectedness of markets. We contribute to the studies which have examined the different stock markets’ response to different turbulences. The study confirms that specific market effects can still play a significant role because of the interconnection of different sectors of the global economy.

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Section: Resultssupporting

confidence: 86%

Section: Literature Reviewmentioning

confidence: 99%

Linear and Nonlinear Effects in Connectedness Structure: Comparison between European Stock Markets

Karkowska

Urjasz

2022

Entropy

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“…), including economics and financé. In the latter, we can highlight some papers where this approach has been applied to evaluate the information flow between stock indices, exchange rates, stock markets and cryptocurrencies or between cryptocurrencies and commodities (Kwon &Yang, 2008;Dimpfl & Peter, 2013;Sensoy et al, 2014;Kim et al, 2020;Huynh et al, 2020;Yi et al, 2021;Ferreira et al, 2021;Assaf et al, 2022, among others). Modelling information flows through transfer entropy has advantages, due to the possibility of evaluating such relationships as a whole.…”

Section: Methodology and Datamentioning

confidence: 99%

The use of transfer entropy to analyse the comovements of European Union stock markets: a dynamical analysis in times of crises

Ferreira

Almeida

Dionísio

et al. 2022

RGE

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Understanding the linkages among stock markets holds great importance for investors, policymakers and portfolio managers. When considering the integration of international stock markets and given they are complex systems, it is important to understand how they are related and how they influence each other. Studying data from 25 European Union stock market indices, this piece of research aims to evaluate the dynamics of influence among them. In terms of method, a non-linear approach has been applied, based on transfer entropy with static and dynamic analysis. As the main finding, a strongly influential relationship between some indices should be highlighted. The static analysis allows us to infer that central and western European Union countries are the main influencers, while the dynamic analysis leads us to the conclusion that the relationships between the stock markets have changed over time, revealing their dynamism. The results obtained have several implications. For instance, for investors and portfolio managers, the information about comovements is relevant for diversification purposes and for their decisions on where to make their investments, build portfolio strategies and manage risks; however, for policymakers, the constant monitoring of stock markets may detect increases in the connection between markets, which could be understood as signs of instability.

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“…Methodically, the use of transfer entropies, which quantifies the mutual information shared between financial markets, has gained attention in recent finance literature (see, e.g., [1,9,15,16,33,[47][48][49][50]). e relevance of entropybased assessment of market efficiency is envisaged from the overflow of stressed market conditions in recent periods [50].…”

Section: Literature Reviewmentioning

confidence: 99%

ICEEMDAN-Based Transfer Entropy between Global Commodity Classes and African Equities

Bossman

Agyei

2022

Mathematical Problems in Engineering

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We examine the information transfer dynamics between global commodity and African equity markets to test their efficiency levels in a denoised transfer entropy approach. Our findings in the short- and medium-term scales lend support to the alternative hypothesis of market efficiency, whereas the transfer entropies at the long-term scale lend support to the efficient market hypothesis and the long-term market efficiency. Investing in a single commodity results in high uncertainty when the return pattern (history) of African equities is acknowledged. Similarly, investing in any single African equity results in high return uncertainty whilst accounting for the history of commodity markets’ returns. Short-term traders could monitor the loopholes in the market efficiency levels between global commodities and African equities to take advantage of arbitrage when needed, whilst long-term investors are assured of efficient market dynamics between global commodity markets and African equities. Regulation of markets may need to strategically incorporate news items as they fall due to either market.

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A new vision about the influence of major stock markets in CEEC indices: a bidirectional dynamic analysis using transfer entropy

Cited by 9 publications

References 28 publications

Linear and Nonlinear Effects in Connectedness Structure: Comparison between European Stock Markets

Linear and Nonlinear Effects in Connectedness Structure: Comparison between European Stock Markets

The use of transfer entropy to analyse the comovements of European Union stock markets: a dynamical analysis in times of crises

ICEEMDAN-Based Transfer Entropy between Global Commodity Classes and African Equities

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