Forbidden patterns in financial time series

Details Forbidden patterns in financial time series Forbidden patterns in financial time series

2007-11-05

arxiv.org/abs/0711.0729v2

Economy

Quantitative Finance

Statistical Finance

4 pages, 4 figures; affiliation updated

Scientific paper

10.1063/1.2841197

The existence of forbidden patterns, i.e., certain missing sequences in a given time series, is a recently proposed instrument of potential application in the study of time series. Forbidden patterns are related to the permutation entropy, which has the basic properties of classic chaos indicators, thus allowing to separate deterministic (usually chaotic) from random series; however, it requires less values of the series to be calculated, and it is suitable for using with small datasets. In this Letter, the appearance of forbidden patterns is studied in different economical indicators like stock indices (Dow Jones Industrial Average and Nasdaq Composite), NYSE stocks (IBM and Boeing) and others (10-year Bond interest rate), to find evidences of deterministic behavior in their evolutions.

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