An econophysics approach to analyse uncertainty in financial markets: an application to the Portuguese stock market
University of Evora, Center of Business Studies, CEFAGE-UE, Largo Colegiais, 2, 7000 Evora, Portugal
2 ISCTE, Departament of Quantitative Methods, Av. Forcas Armadas, 1649 Lisboa, Portugal
Revised: 23 November 2005
Published online: 12 April 2006
In recent years there has been a closer interrelationship between several scientific areas trying to obtain a more realistic and rich explanation of the natural and social phenomena. Among these it should be emphasized the increasing interrelationship between physics and financial theory. In this field the analysis of uncertainty, which is crucial in financial analysis, can be made using measures of physics statistics and information theory, namely the Shannon entropy. One advantage of this approach is that the entropy is a more general measure than the variance, since it accounts for higher order moments of a probability distribution function. An empirical application was made using data collected from the Portuguese Stock Market.
PACS: 89.70.+c – Information theory and communication theory (for telecommunications, see 84.40.Ua; for optical communications, see 42.79.Sz) / 89.65.Gh – Economics; econophysics, financial markets, business and management
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 2006