Permutation entropy analysis of financial time series based on Hill’s diversity number

Abstract

In this paper the permutation entropy based on Hill’s diversity number (Nn,r) is introduced as a new way to assess the complexity of a complex dynamical system such as stock market. We test the performance of this method with simulated data. Results show that Nn,r with appropriate parameters is more sensitive to the change of system and describes the trends of complex systems clearly. In addition, we research the stock closing price series from different data that consist of six indices: three US stock indices and three Chinese stock indices during different periods, Nn,r can quantify the changes of complexity for stock market data. Moreover, we get richer information from Nn,r, and obtain some properties about the differences between the US and Chinese stock indices.