Entropic information theory applied to uncertainty in financial markets

• Author(s): Dionísio, Andreia ; Menezes, Rui ; Mendes, Diana
• Date: 2006
• Persistent ID: http://hdl.handle.net/10174/6084
• Origin: Repositório Científico da Universidade de Évora
• Subject(s): Entropy; Mutual Information; Uncertainty; Financial Markets
• Document Type: Article
• Language: Portuguese
• Editor(s): Dionísio, Andreia; Heitor Reis, António; Namorado Rosa, Rui

Description

One of the most popular concepts used to measure the risk and the uncertainty is the variance and/or the standard-deviation. In this paper we explore the potentialities of the entropy as a measure of uncertainty in financial markets, and simultaneously verify if this measure take into account some basic assumptions of the portfolio management theory, namely the effect of diversification.