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2020 ; 139
(ä): 110084
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Renyi entropy and mutual information measurement of market expectations and
investor fear during the COVID-19 pandemic
#MMPMID32834621
Lahmiri S
; Bekiros S
Chaos Solitons Fractals
2020[Oct]; 139
(ä): 110084
PMID32834621
show ga
The COVID-19 pandemic has seriously affected world economies. In this regard, it
is expected that information level and sharing between equity, digital currency,
and energy markets has been altered due to the pandemic outbreak. Specifically,
the resulting twisted risk among markets is presumed to rise during the abnormal
state of world economy. The purpose of the current study is twofold. First, by
using Renyi entropy, we analyze the multiscale entropy function in the return
time series of Bitcoin, S&P500, WTI, Brent, Gas, Gold, Silver, and investor fear
index represented by VIX. Second, by estimating mutual information, we analyze
the information sharing between these markets. The analyses are conducted before
and during the COVID-19 pandemic. The empirical results from Renyi entropy
indicate that for all market indices, randomness and disorder are more
concentrated in less probable events. The empirical results from mutual
information showed that the information sharing network between markets has
changed during the COVID-19 pandemic. From a managerial perspective, we conclude
that during the pandemic (i) portfolios composed of Bitcoin and Silver, Bitcoin
and WTI, Bitcoin and Gold, Bitcoin and Brent, or Bitcoin and S&P500 could be
risky, (ii) diversification opportunities exist by investing in portfolios
composed of Gas and Silver, Gold and Silver, Gold and Gas, Brent and Silver,
Brent and Gold, or Bitcoin and Gas, and that (iii) the VIX exhibited the lowest
level of information disorder at all scales before and during the pandemic. Thus,
it seems that the pandemic has not influenced the expectations of investors. Our
results provide an insight of the response of stocks, cryptocurrencies, energy,
precious metal markets, to expectations of investors in the aftermath of the
COVID-19 pandemic in terms of information ordering and sharing.