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Transaction Entropy: An Alternative Metric of Market Performance

Authors: Hua Zhong; Xiaohao Liang; Yougui Wang;

Transaction Entropy: An Alternative Metric of Market Performance

Abstract

Market uncertainty has a significant impact on market performance. Previous studies have dedicated much effort towards investigations into market uncertainty related to information asymmetry and risk. However, they have neglected the uncertainty inherent in market transactions, which is also an important aspect of market performance, besides the quantity of transactions and market efficiency. In this paper, we put forward a concept of transaction entropy to measure market uncertainty and see how it changes with price. Transaction entropy is defined as the ratio of the total information entropy of all traders to the quantity of transactions, reflecting the level of uncertainty in making successful transactions. Based on the computational and simulated results, our main finding is that transaction entropy is the lowest at equilibrium, it will decrease in a shortage market, and increase in a surplus market. Additionally, we make a comparison of the total entropy of the centralized market with that of the decentralized market, revealing that the price-filtering mechanism could effectively reduce market uncertainty. Overall, the introduction of transaction entropy enriches our understanding of market uncertainty and facilitates a more comprehensive assessment of market performance.

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Keywords

QB460-466, market uncertainty; transaction entropy; market performance; price filtering mechanism; willingness price, price filtering mechanism, market performance, market uncertainty, Science, Physics, QC1-999, Q, transaction entropy, willingness price, Astrophysics, Article

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
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