Entropy, the Information Processing Cycle, and the Forecasting of Bull and Bear Market Peaks and Troughs

Parker, E. (2019). Entropy, the Information Processing Cycle, and the Forecasting of Bull and Bear Market Peaks and Troughs. Special Issue on Econophysics and Finance. (IJPMAT), 7(1), 77-90. doi:10.4018/IJPMAT.2019010105

16 Pages Posted: 19 Sep 2017 Last revised: 4 Oct 2018

See all articles by Edgar Parker

Edgar Parker

New York Life Insurance Company

Date Written: September 15, 2017

Abstract

Many econophysics applications have modeled financial systems as if they were pure physical systems devoid of human limitations and errors. On the other hand, traditional financial theory has ignored limits that physics would impose on human interactions, communications, and computational abilities. The entropic yield curve as developed in (Parker 2017) blends the physical and human financial worlds in a new, powerful, and surprisingly simple way. This paper uses this information theoretic perspective to provide a new explanation of the dynamics and timing of financial cycles. Additionally, the entropic yield curve offers a new method of forecasting market peaks and troughs.

Keywords: Information Theory, Entropy, Shannon Entropy, Burnashev, Bull Market, Bear Market, Econophysics, Equity, Bond

JEL Classification: G12, G14, E32, E37, E43, E44, E49

Suggested Citation

Parker, Edgar, Entropy, the Information Processing Cycle, and the Forecasting of Bull and Bear Market Peaks and Troughs (September 15, 2017). Parker, E. (2019). Entropy, the Information Processing Cycle, and the Forecasting of Bull and Bear Market Peaks and Troughs. Special Issue on Econophysics and Finance. (IJPMAT), 7(1), 77-90. doi:10.4018/IJPMAT.2019010105. Available at SSRN: https://ssrn.com/abstract=3037578 or http://dx.doi.org/10.2139/ssrn.3037578

Edgar Parker (Contact Author)

New York Life Insurance Company ( email )

51 Madison Avenue
New York, NY 10010
United States

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