Mutual Information: a dependence measure for nonlinear time series

This paper investigates the possibility to analyse the structure of unconditional or conditional (and possibly nonlinear) dependence in ...nancial returns without requiring the speci...cation of mean-variance models or a theoretical probability distribution. Abstract The main goal of the paper is to show how mutual information can be used as a measure of dependence in ...nancial time series. One major advantage of this approach resides precisely in its ability to account for nonlinear dependencies with no need to specify a theoretical probability distribution or use of a mean-variance model.The main goal of the paper is to show how mutual information can be used as a measure of dependence in ...nancial time series. One major advantage of this approach resides precisely in its ability to account for nonlinear dependencies with no need to specify a theoretical probability distribution or use of a mean-variance model.