Pathways to randomness in the economy: Emergent nonlinearity and chaos in economics and finance
AbstractThis paper: (1) Gives a general argument why research on nonlinear science in general and chaos in particular is important in economics and finance. (2) Puts forth two definitions of stochastic nonlinearity (IID-Linearity and MDS-Linearity) for nonlinear time series analysis and argues for their usefulness as organizing concepts not only for discussion of nonlinearity testinf but also for building a new class of structural asset pricing models. (3) Shows how to use ideas from interacting particle systems theory to build structural asset pricing models that turn IID-Linear or MDS-Linear earnings processes into non MDS-Linear equilibrium returns processes.
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Bibliographic InfoArticle provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.
Volume (Year): 8 (1993)
Issue (Month): 1 ()
Other versions of this item:
- W. A. Brock, 1993. "Pathways to Randomness in the Economy: Emergent Nonlinearity and Chaos in Economics and Finance," Working Papers 93-02-006, Santa Fe Institute.
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