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Testing Chaotic Dynamics via Lyapunov Exponents

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  • Fernando Fernández-Rodríguez
  • Simón Sosvilla-Rivero
  • Julián Andrada-Félix
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    Abstract

    In this paper, we propose a new test, based on the stability of the largest Lyapunov exponent from different sample sizes, to detect chaotic dynamics in economic and financial time series. We apply this new test to the simulated data used in the single-blind controlled competition among tests for for nonlinearity and chaos provided by Barnet et al. (1997), both for small samples (380 observations) and for large samples (2000 observations). The results suggest that the new test has high power against different stochastic alternatives (both linear and nonlinear) and that behaves well in small samples.

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    File URL: http://documentos.fedea.net/pubs/dt/2000/dt-2000-07.pdf
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    Paper provided by FEDEA in its series Working Papers with number 2000-07.

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    Handle: RePEc:fda:fdaddt:2000-07

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    1. William Barnett & A. Ronald Gallant & Melvin J. Hinich & Jochen A. Jungeilges & Daniel T. Kaplan & Mark J. Jensen, 2012. "A Single-Blind Controlled Competition Among Tests For Nonlinearity And Chaos," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201219, University of Kansas, Department of Economics, revised Sep 2012.
    2. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    3. Bajo-Rubio, Oscar & Fernandez-Rodriguez, Fernando & Sosvilla-Rivero, Simon, 1992. "Chaotic behaviour in exchange-rate series : First results for the Peseta--U.S. dollar case," Economics Letters, Elsevier, vol. 39(2), pages 207-211, June.
    4. Dechert, W D & Gencay, R, 1992. "Lyapunov Exponents as a Nonparametric Diagnostic for Stability Analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S41-60, Suppl. De.
    5. Bask , Mikael, 1997. "Deterministic Chaos in Exchange Rates?," UmeÃ¥ Economic Studies 453, Umeå University, Department of Economics.
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