Diffusion Entropy Analysis: Stability of Indian Stock Market

Abstract

The large amount of available data of stock markets becomes very beneficial when it is transformed to valuable information. The analysis of this huge data is essential to extract out the useful information. In the present work, we employ the method of diffusion entropy to study time series of different indexes of Indian stock market. We analyze the stability of Nifty50 index of National Stock Exchange (NSE) India and SENSEX index of Bombay Stock Exchange (BSE), India in the vicinity of global financial crisis of 2008. We also apply the technique of diffusion entropy to analyze the stability of Dow Jones Industrial Average (DJIA) index of USA. We compare the results of Indian Stock market with the USA stock market (DJIA index). We conduct an empirical analysis of the stability of Nifty50, Sensex and DJIA indexes. We find significant drop in the value of diffusion entropy of Nifty50, Sensex and DJIA during the period of crisis. Both Indian and USA stock markets show bull market effects in the pre-crisis and post-crisis periods and bear market effect during the period of crisis. Our findings reveal that diffusion entropy technique can replicate the price fluctuations as well as critical events of the stock market.

Weak Form Market Efficiency in Nepalese Stock Market Indices

“…However, the small capitalization index provided shreds of evidence against a weak form efficiency hypothesis and hence, consistent with the results reported by Fama and French (1988), Hamid et al (2010) and Nguyen et al (2012). Kumar and Ruhi (2019) examined the efficient market hypothesis in the Indian stock using closing prices of 31 companies listed on the SENSEX, Bombay, India. The data were analyzed employing Autocorrelation, correlogram, and runs test.…”