The Impact of Financial and Macroeconomic Shocks on the Entropy of Financial Markets

Sorin Anagnoste; Petre Caraiani

doi:10.3390/e21030316

The Impact of Financial and Macroeconomic Shocks on the Entropy of Financial Markets

Entropy (Basel). 2019 Mar 23;21(3):316. doi: 10.3390/e21030316.

Authors

Sorin Anagnoste¹, Petre Caraiani^{1

2}

Affiliations

¹ Faculty of Business Administration in Foreign Languages, Bucharest University of Economic Studies, 010374 Bucharest, Romania.
² Institute for Economic Forecasting, Romanian Academy, 050711 Bucharest, Romania.

Abstract

We propose here a method to analyze whether financial and macroeconomic shocks influence the entropy of financial networks. We derive a measure of entropy using the correlation matrix of the stock market components of the DOW Jones Industrial Average (DJIA) index. Using VAR models in different specifications, we show that shocks in production or the DJIA index lead to an increase in the entropy of the financial markets.

Keywords: entropy; financial markets; monetary policy; networks.