A survey on the subject shows that the most commonly used measure of stock market volatility has been the standard deviation. However, since it can only account for linear phenomena we purpose an alternative approach based on the concept of entropy, whose main advantage lies on the fact that it makes possible a more comprehensive description of such volatility. In view of the fact that the Shannon entropy is only suitable for describing systems in a state of equilibrium, a generalization of it –Tsallis entropy – is additionally considered. This measure is suitable for describing anomalous systems, into which category financial markets appear to fall. More specifically, a comparison is made in this research between the results of the traditional approach based on the standard deviation and the ones provided by Shannon and Tsallis entropies. A sample is used consisting of the returns of the main stock market indexes of the G7 countries. The results show the limitations of the standard deviation-based approach in fully characterizing the oscillations of volatility.

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volatility, stock markets, entropy, standard deviation