Adaptation of Partial Mutual Information from Mixed Embedding to Discrete-Valued Time Series.

Abstract

A causality analysis aims at estimating the interactions of the observed variables and subsequently the connectivity structure of the observed dynamical system or stochastic process. The partial mutual information from mixed embedding (PMIME) is found appropriate for the causality analysis of continuous-valued time series, even of high dimension, as it applies a dimension reduction by selecting the most relevant lag variables of all the observed variables to the response, using conditional mutual information (CMI). The presence of lag components of the driving variable in this vector implies a direct causal (driving-response) effect. In this study, the PMIME is appropriately adapted to discrete-valued multivariate time series, called the discrete PMIME (DPMIME). An appropriate estimation of the discrete probability distributions and CMI for discrete variables is implemented in the DPMIME. Further, the asymptotic distribution of the estimated CMI is derived, allowing for a parametric significance test for the CMI in the DPMIME, whereas for the PMIME, there is no parametric test for the CMI and the test is performed using resampling. Monte Carlo simulations are performed using different generating systems of discrete-valued time series. The simulation suggests that the parametric significance test for the CMI in the progressive algorithm of the DPMIME is compared favorably to the corresponding resampling significance test, and the accuracy of the DPMIME in the estimation of direct causality converges with the time-series length to the accuracy of the PMIME. Further, the DPMIME is used to investigate whether the global financial crisis has an effect on the causality network of the financial world market.