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Transaction Entropy: An Alternative Measurement of Market Performance
Version 1
: Received: 4 July 2023 / Approved: 4 July 2023 / Online: 4 July 2023 (09:41:21 CEST)
A peer-reviewed article of this Preprint also exists.
Zhong, H.; Liang, X.; Wang, Y. Transaction Entropy: An Alternative Metric of Market Performance. Entropy 2023, 25, 1140. Zhong, H.; Liang, X.; Wang, Y. Transaction Entropy: An Alternative Metric of Market Performance. Entropy 2023, 25, 1140.
Abstract
Market uncertainty has a significant impact on market performance. Previous studies put much efforts in investigations on 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 quantity of transactions and market efficiency. In this paper, we put forward the concept of transaction entropy to measure the market uncertainty and see how it changes with price. The definition of transaction entropy is the ratio of total information entropy of all traders to quantity of transactions, reflecting the level of uncertainty in making transactions. And the transaction entropy is the lowest at equilibrium, it will be decreasing in a shortage market, and increasing in a surplus market. Additionally, we make a comparison of 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.
Keywords
market uncertainty; transaction entropy; market performance; willingness price
Subject
Business, Economics and Management, Economics
Copyright: This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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