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Fractal and Entropy Analysis of the Dow Jones Index Using Multidimensional Scaling

Financial time series have a fractal nature that poses challenges for their dynamical characterization. The Dow Jones Industrial Average (DJIA) is one of the most influential financial indices, and due to its importance, it is adopted as a test bed for this study. The paper explores an alternative s...

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Detalles Bibliográficos
Autor principal: Machado, José A. Tenreiro
Formato: Online Artículo Texto
Lenguaje:English
Publicado: MDPI 2020
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7597287/
https://www.ncbi.nlm.nih.gov/pubmed/33286907
http://dx.doi.org/10.3390/e22101138
Descripción
Sumario:Financial time series have a fractal nature that poses challenges for their dynamical characterization. The Dow Jones Industrial Average (DJIA) is one of the most influential financial indices, and due to its importance, it is adopted as a test bed for this study. The paper explores an alternative strategy to the standard time analysis, by joining the multidimensional scaling (MDS) computational tool and the concepts of distance, entropy, fractal dimension, and fractional calculus. First, several distances are considered to measure the similarities between objects under study and to yield proper input information to the MDS. Then, the MDS constructs a representation based on the similarity of the objects, where time can be viewed as a parametric variable. The resulting plots show a complex structure that is further analyzed with the Shannon entropy and fractal dimension. In a final step, a deeper and more detailed assessment is achieved by associating the concepts of fractional calculus and entropy. Indeed, the fractional-order entropy highlights the results obtained by the other tools, namely that the DJIA fractal nature is visible at different time scales with a fractional order memory that permeates the time series.