What is it about?

We use transfer entropy to quantify information flows between financial markets and propose a suitable bootstrap procedure for statistical inference. Transfer entropy is a model-free measure designed as the Kullback-Leibler distance of transition probabilities. Our approach allows to determine, measure and test for information transfer without being restricted to linear dynamics. In our empirical application, we examine the importance of the credit default swap market relative to the corporate bond market for the pricing of credit risk. We also analyze the dynamic relation between market risk and credit risk proxied by the VIX and the iTraxx Europe, respectively. We conduct the analyses for pre-crisis, crisis and post-crisis periods.

Featured Image

Read the Original

This page is a summary of: Using transfer entropy to measure information flows between financial markets, Studies in Nonlinear Dynamics & Econometrics, January 2013, De Gruyter, DOI: 10.1515/snde-2012-0044.
You can read the full text:



The following have contributed to this page