Non-extensitivity vs. informative moments for financial models —A unifying framework and empirical resultsK. Herrmann
School of Business and Economics, University of Erlangen-Nürnberg Lange Gasse 20, 90403 Nürnberg, Germany, EU
received 5 June 2009; accepted in final form 20 October 2009; published November 2009
published online 16 November 2009
Information-theoretic approaches still play a minor role in financial market analysis. Nonetheless, there have been two very similar approaches evolving during the last years, one in the so-called econophysics and the other in econometrics. Both generalize the notion of GARCH processes in an information-theoretic sense and are able to capture kurtosis better than traditional models. In this article we present both approaches in a more general framework. The latter allows the derivation of a wide range of new models. We choose a third model using an entropy measure suggested by Kapur. In an application to financial market data, we find that all considered models – with similar flexibility in terms of skewness and kurtosis – lead to very similar results.
05.45.Tp - Time series analysis.
05.90.+m - Other topics in statistical physics, thermodynamics, and nonlinear dynamical systems.
89.65.Gh - Economics; econophysics, financial markets, business and management.
© EPLA 2009