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Pathways to randomness in the economy: Emergent nonlinearity and chaos in economics and finance

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  • William A. Brock

    (University of Wisconsin, Madison)

Abstract

This 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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File URL: http://codex.colmex.mx:8991/exlibris/aleph/a18_1/apache_media/LBTVH4GANTD1GQMTHUEEHT5XE5T2GM.pdf
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Bibliographic Info

Article provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.

Volume (Year): 8 (1993)
Issue (Month): 1 ()
Pages: 3-55

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Handle: RePEc:emx:esteco:v:8:y:1993:i:1:p:3-55

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Web page: http://www.colmex.mx/centros/cee/
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