Investigating the financial crisis of the Tehran Stock Exchange using the entropy method of transfer and comparing it with the US financial market

Document Type : Original Article

Authors

1 Department of Accounting, Kish International Branch, Islamic Azad University, Kish Island, Iran.

2 Associate Prof., Department of Accounting, Islamic Azad University, South Tehran Branch, Tehran, Iran.

3 Assistant Prof., Department of Physics, Shahid Beheshti University, GE Even, Tehran, Iran.

4 Prof., Department of Physics, Shahid Beheshti University, GE Even, Tehran, Iran.

10.30699/ijf.2021.262236.1183

Abstract

This work aims to analyze the relationship between stocks in the financial market of the Tehran Stock Exchange embedded in their transfer entropy. In this regard, the behavior of the transfer entropy between indices of 180 corporations of the Tehran Stock Exchange has been studied. Then the footprint of crises of the market has been searched in the trends of the transfer entropy. The result has been compared with the result of the analysis imposed on the stocks included in the Dow Jones industrial index in the stock exchanges of the United States. In order to investigate the financial crisis of the Tehran Stock Exchange, the stock price data of 180 companies in this market that were active in the period from 2008 to 2018 are analyzed. It is observed that the average pairwise transfer entropy of indices in the Dow Jones group declines over the financial crises in the United States. In Iran, despite the United States, the financial crises have not left a footprint in the pairwise transfer entropy over the studied period. Such an observation suggests future studies on the pairwise and possibly collective behaviors of indices in Iran and the United States.

Keywords


Abdollahzadeh, Salam, Faghandoust Haghighi, Kambiz, Arad, Hamed. (2013). Entropy Investigation of Financial Statements and their Impact on Profit Changes in Tehran Stock Exchange Industries, 13 (52), 133-93. (in Persian).
Abdollahzadeh, Salam, Mohammadi Moqarrani, Atallah, Noroush, Iraj, Amini, Peyman. (2018). Investigating the Impact of Liquidity and Leverage Entropy Rates on Identifying Suspected Firms in Financial Reporting. Audit knowledge. 18 (72). 96-79. (in Persian).
An international trading Broker (2018). A Network Analysis of Global BankingJ  Finance. Stab. 9, 168–184.
Arab Salehi, Mehdi, Rahrodi Djerjerdi, Alireza, Hamidian, Narges. (2015). Investigating the Causes of Global Financial Crisis Occurrence and Dissemination with Emphasis on Complexity Approach. Accounting Research, 5 (3), 31-50. (in Persian).
Ardalan kia J. Osoolian M. haven E. Jafari (2020) scaling features of price-volume cross-correlation .research gate
 Biani, Azra, Mohammadi, Timur. (2019). Factors Affecting Financial Crises: A Bayesian Averaging Approach. Journal of Quantitative Economics, 16 (2), 180-150. (in Persian).
Babecký, J., T. Havránek, J. Matějů, M. Rusnák, K. Šmídová & B. Vašíček. (2012). Leading Indicators of Crisis Incidence: Evidence from Developed Countries. Czech National Bank, mimeo.
Bonis, R.D., A. Giustiniani & G. Gomel. (1999). Crises and Bail Outs of Banks and Countries: Linkages, Analogies, and Differences. The World Economy, Vol. 22, pp: 55-86.
Castrén, O.; Rancan, M (2013). Macro-Networks: An Application to the Euro Area Financial Accounts; ECB Working Paper No. 1510; European Central Bank: Frankfurt am Main, Germany.
Fama, E. F. The behavior of stock-market prices. J. Business 38, 34–105,
Fama, E. F. (1970). Efficient capital markets: a review of theory and empirical work. J. Finance 25, 383–417.
Fosberg, R, (2012), Capital Structure and Financial Crises, working paper, William Paterson University.
Fatemi Adel, Sorting Univariate Distributions by Entropy and Variance (2001). Master of Science Degree in Mathematics and Statistics, Tehran University of Teacher Education. (in Persian).
Hasanzadeh, Ali and Mehran Kianvand. (2009). The Global Financial Crisis, The OPEC World Oil and Strategic Market, Economic News, New Volume, Seventh Year, No. 126. (in Persian).
Hale, G. (2012). Bank Relationships, Business Cycles, and Financial Crises. J. Int. Econ.  88, 312–325.
Jegadeesh, N. & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market efficiency. The Journal of finance 48, 65–91
Lee, D., & Park, H. (2019). Measuring Global Financial Linkages: A Network    Entropy Approach. Sustainability, 11(17), 4691.
Lo, A. W. & Mackinlay, A. C. (1990). When Are Contrarian Profits Due to Stock Market Overreaction? Rev. Financial Stud. 3, 175–205.
Mantegna, R. N. & Stanley, H. E. (2000). An Introduction to Econophysics, Chapter 5,
Namaki A. Ardalan kia J, Hedayatifar. Hosseini A, Jafari G (2020). Analysis of the global banking network by random matrix theory. Cornell University
Osoolian, Mohammad,; Hosseini Esfidavajani, Seyyed Ali & Bagheri Mobina (2019). Stock market index analysis with entropy approach. Journal of Financial Management Perspective. 8(4), 159-180. (In Persian).
Reinhart, C. M. & K. S. Rogoff. (2009). This Time is Different. New Jersey: Princeton University Press.
Rummel, C. (2017). Governor's School for Science & Mathematics, Transfer Entropy within the Nasdaqe Stock Exchange, South Carolina Junior Academy of Science. 76. Schreiber T., Phys. Rev. Lett., 85 (2000) 461.
Shannon, Claude E. (1948). A Mathematical Theory of Communication; Bell System Technical Journal 379-423.
Soheili, Kiomars and Azar Mirzaei Rashno. (2012). Investigating the Relationship between the Global Financial Crisis and Economic Growth in Iran, M.Sc. in Economics, Razi University of Kermanshah. (in Persian).
Sensoy, A., Sobaci, C., Sensoy, S., & Alali, F. (2014). Effective transfer entropy approach to information flow between exchange rates and stock markets. Chaos, Solitons & Fractals, 68, 180–185.
Stosic, D., Stosic, D., Ludermir, T., de Oliveira, W., & Stosic, T. (2016). Foreign exchange rate entropy evolution during financial crises. Physica A: Statistical Mechanics and Its Applications, 449, 233–239.
Thomas Schreiber, T., (2000). Measuring Information Transfer, Physical review letters 85(2), 461. Upper, C.; Worms, A. Estimating Bilateral Exposure.
Wiener, Norbert (1949). Extrapolation, Interpolation, and Smoothing of Stationary Time Series. New York: Wiley.
Weistro_er, C. Mobert, .J. (2010). Monitoring Cross-Border Exposure: A Primer on how to Exploit the BIS Banking Statistics; Deutsche Bank Research Current Issues; Deutsche Bank Research: Frankfurt am Main, Germany.