On Capturing the Spreading Dynamics over Trading Prices in the Market

TL;DR

This paper introduces a novel method using entropy transfer and Granger causality to model and analyze the spreading dynamics of information over trading prices, providing insights into market behavior.

Contribution

It proposes a new weighted directed graph approach incorporating entropy transfer to detect influence among prices, improving understanding of market information flow.

Findings

The entropy transfer-based tree reveals influence patterns among stock prices.

Comparison shows the method captures dynamic information flow better than correlation-based trees.

The approach offers a new perspective on collective market behavior.

Abstract

While market is a social field where information flows over the interacting agents, there have been not so many methods to observe the spreading information in the prices comprising the market. By incorporating the entropy transfer in information theory in its relation to the Granger causality, the paper proposes a tree of weighted directed graph of market to detect the changes of price might affect other price changes. We compare the proposed analysis with the similar tree representation built from the correlation coefficients of stock prices in order to have insight of possibility in seeing the collective behavior of the market in general.