Frequency Effects on Predictability of Stock Returns

We propose that predictability is a prerequisite for profitability on financial markets. We look at ways to measure predictability of price changes using information theoretic approach and employ them on all historical data available for NYSE 100 stocks. This allows us to determine whether frequency of sampling price changes affects the predictability of those. We also relations between price changes predictability and the deviation of the price formation processes from iid as well as the stock's sector. We also briefly comment on the complicated relationship between predictability of price changes and the profitability of algorithmic trading.Comment: 8 pages, 16 figures, submitted for possible publication to Computational Intelligence for Financial Engineering and Economics 2014 conferenc

Structural Information in Two-Dimensional Patterns: Entropy Convergence and Excess Entropy

We develop information-theoretic measures of spatial structure and pattern in more than one dimension. As is well known, the entropy density of a two-dimensional configuration can be efficiently and accurately estimated via a converging sequence of conditional entropies. We show that the manner in which these conditional entropies converge to their asymptotic value serves as a measure of global correlation and structure for spatial systems in any dimension. We compare and contrast entropy-convergence with mutual-information and structure-factor techniques for quantifying and detecting spatial structure.Comment: 11 pages, 5 figures, http://www.santafe.edu/projects/CompMech/papers/2dnnn.htm

Population annealing: Theory and application in spin glasses

Population annealing is an efficient sequential Monte Carlo algorithm for simulating equilibrium states of systems with rough free energy landscapes. The theory of population annealing is presented, and systematic and statistical errors are discussed. The behavior of the algorithm is studied in the context of large-scale simulations of the three-dimensional Ising spin glass and the performance of the algorithm is compared to parallel tempering. It is found that the two algorithms are similar in efficiency though with different strengths and weaknesses.Comment: 16 pages, 10 figures, 4 table

Complexity-entropy analysis at different levels of organization in written language

Written language is complex. A written text can be considered an attempt to convey a meaningful message which ends up being constrained by language rules, context dependence and highly redundant in its use of resources. Despite all these constraints, unpredictability is an essential element of natural language. Here we present the use of entropic measures to assert the balance between predictability and surprise in written text. In short, it is possible to measure innovation and context preservation in a document. It is shown that this can also be done at the different levels of organization of a text. The type of analysis presented is reasonably general, and can also be used to analyze the same balance in other complex messages such as DNA, where a hierarchy of organizational levels are known to exist

Frenesy: time-symmetric dynamical activity in nonequilibria

We review the concept of dynamical ensembles in nonequilibrium statistical mechanics as specified from an action functional or Lagrangian on spacetime. There, under local detailed balance, the breaking of time-reversal invariance is quantified via the entropy flux, and we revisit some of the consequences for fluctuation and response theory. Frenesy is the time-symmetric part of the path-space action with respect to a reference process. It collects the variable quiescence and dynamical activity as function of the system's trajectory, and as has been introduced under different forms in studies of nonequilibria. We discuss its various realizations for physically inspired Markov jump and diffusion processes and why it matters a good deal for nonequilibrium physics. This review then serves also as an introduction to the exploration of frenetic contributions in nonequilibrium phenomena

The use of information theory in evolutionary biology

Information is a key concept in evolutionary biology. Information is stored in biological organism's genomes, and used to generate the organism as well as to maintain and control it. Information is also "that which evolves". When a population adapts to a local environment, information about this environment is fixed in a representative genome. However, when an environment changes, information can be lost. At the same time, information is processed by animal brains to survive in complex environments, and the capacity for information processing also evolves. Here I review applications of information theory to the evolution of proteins as well as to the evolution of information processing in simulated agents that adapt to perform a complex task.Comment: 25 pages, 7 figures. To appear in "The Year in Evolutionary Biology", of the Annals of the NY Academy of Science