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Information flow around stock market collapse

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  • Terry Bossomaier
  • Lionel Barnett
  • Adam Steen
  • Mike Harré
  • Steve d'Alessandro
  • Rod Duncan

Abstract

Strong correlations among share prices appear during a market transitions. Numerous measures have been proposed to predict crash events, but they all show a trend which peaks at the transition itself. Information flow among share prices peaks before a transition, whereas correlation‐based indices peak at the transition itself. The classic spin model used in physics describes one type of tipping point where there is a peak in information flow located away from the transition point itself and is thus predictive. Information theoretic metrics of this kind have not been applied to prediction in real‐world systems, such as stock markets.

Suggested Citation

  • Terry Bossomaier & Lionel Barnett & Adam Steen & Mike Harré & Steve d'Alessandro & Rod Duncan, 2018. "Information flow around stock market collapse," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(S1), pages 45-58, November.
    • Handle: RePEc:bla:acctfi:v:58:y:2018:i:s1:p:45-58
    DOI: 10.1111/acfi.12390
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    References listed on IDEAS

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    Cited by:

    1. Islam, Raisul & Volkov, Vladimir, 2020. "Calm before the storm: an early warning approach before and during the COVID-19 crisis," Working Papers 2020-09, University of Tasmania, Tasmanian School of Business and Economics.

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