- Transfer Entropy for Nonparametric Granger Causality Detection
- An Evaluation of Different Resampling Methods
- Volume | Issue number
- 19 | 7
- Article number
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
The information-theoretical concept transfer entropy is an ideal measure for detecting conditional independence, or Granger causality in a time series setting. The recent literature indeed witnesses an increased interest in applications of entropy-based tests in this direction. However, those tests are typically based on nonparametric entropy estimates for which the development of formal asymptotic theory turns out to be challenging. In this paper, we provide numerical comparisons for simulation-based tests to gain some insights into the statistical behavior of nonparametric transfer entropy-based tests. In particular, surrogate algorithms and smoothed bootstrap procedures are described and compared. We conclude this paper with a financial application to the detection of spillover effects in the global equity market.
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