The Impact of Financial and Macroeconomic Shocks on the Entropy of Financial Markets

Sovereign Bond Yield Differentials across Europe: A Structural Entropy Perspective

This study uses structural entropy as a valuable method for studying complex networks in a macro-finance context, such as the European government bond market. We make two contributions to the empirical literature on sovereign bond markets and entropy in complex networks. Firstly, our article contributes to the empirical literature on the disciplinary function of credit markets from an entropy perspective. In particular, we study bond yield differentials at an average daily frequency among EU countries' 10-year Eurobonds issued between 1 January 1997, and 4 October 2022. Secondly, the article brings a methodological novelty by incorporating an entropy perspective to the study of government bond yield differentials and European capital market integration. Entropy-based methods hold strong potential to bring new sources of dynamism and valuable contributions to the areas of macroeconomics and finance.

Using Entropy to Evaluate the Impact of Monetary Policy Shocks on Financial Networks

We analyze the changes in the financial network built using the Dow Jones Industrial Average components following monetary policy shocks. Monetary policy shocks are measured through unexpected changes in the federal funds rate in the United States. We determine the changes in the financial networks using singular value decomposition entropy and von Neumann entropy. The results indicate that unexpected positive shocks in monetary policy shocks lead to lower entropy. The results are robust to varying the window size used to construct financial networks, though they also depend on the type of entropy used.