Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
977289 | Physica A: Statistical Mechanics and its Applications | 2009 | 16 Pages |
The paper builds upon an earlier statistical analysis of financial time series with Shannon information entropy, published in [L. Molgedey, W. Ebeling, Local order, entropy and predictability of financial time series, European Physical Journal B—Condensed Matter and Complex Systems 15/4 (2000) 733–737]. A novel generic procedure is proposed for making multistep-ahead predictions of time series by building a statistical model of entropy. The approach is first demonstrated on the chaotic Mackey–Glass time series and later applied to Japanese Yen/US dollar intraday currency data. The paper also reinterprets Minority Games [E. Moro, The minority game: An introductory guide, Advances in Condensed Matter and Statistical Physics (2004)] within the context of physical entropy, and uses models derived from minority game theory as a tool for measuring the entropy of a model in response to time series. This entropy conditional upon a model is subsequently used in place of information-theoretic entropy in the proposed multistep prediction algorithm.