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Martingales, Nonlinearity, and Chaos

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Author Info
William A. Barnett (Washington University in St. Louis)
Apostolos Serletis (University of Calgary)

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Abstract

In this paper we provide a review of the literature with respect to the efficient markets hypothesis and chaos. In doing so, we contrast the martingale behavior of asset prices to nonlinear chaotic dynamics, discuss some recent techniques used in distinguishing between probabilistic and deterministic behavior in asset prices, and report some evidence. Moreover, we look at the controversies that have arisen about the available tests and results, and raise the issue of whether dynamical systems theory is practical in finance.

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Paper provided by EconWPA in its series Econometrics with number 9805003.

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Length: 26 pages
Date of creation: 03 Jun 1998
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Handle: RePEc:wpa:wuwpem:9805003

Note: Type of Document - Tex; prepared on IBM PC; pages: 26 ; figures: none. This paper has been invited for publication in a special issue of the Journal of Economic Dynamics and Control. The editors of the special issue are Cars Hommes and Dee Dechert. See
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Related research
Keywords: nonlinearity chaos martingales efficient markets

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Aktham Maghyereh, 2006. "The long-run relationship between stock returns and inflation in developing countries: further evidence from a nonparametric cointegration test," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(4), pages 265-273, July. [Downloadable!] (restricted)
  2. William Barnett & Mehmet Dalkir, 2005. "Gains from Synchronization," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200511, University of Kansas, Department of Economics, revised Apr 2005. [Downloadable!]
    Other versions:
  3. Venus Khim-Sen Liew, 2003. "The Validity of PPP Revisited: An Application of Non-linear Unit Root Test," International Finance 0308001, EconWPA. [Downloadable!]
  4. Kian-Ping Lim & Hock-Ann Lee & Venus Khim-Sen Liew, 2003. "International Diversification Benefits in ASEAN Stock Markets: a Revisit," Finance 0308003, EconWPA. [Downloadable!]
  5. Kian-Ping Lim & M. Azali & M.S. Habibullah & Venus Khim-Sen Liew, 2003. "Are Non-Linear Dynamics a Universal Occurrence? Further Evidence From Asian Stock Markets," Finance 0308001, EconWPA. [Downloadable!]
  6. Theodore Panagiotidis & David Chappell, 2004. "Using the Correlation Dimension to Detect non-linear dynamics," Discussion Paper Series 2004_17, Department of Economics, Loughborough University, revised Nov 2004. [Downloadable!]
  7. K.P. Lim & M.J. Hinich & K.S. Liew, 2003. "GARCH Diagnosis with Portmanteau Bicorrelation Test: An Application on the Malaysia's Stock Market," Finance 0307013, EconWPA. [Downloadable!]
  8. Chi-Wei Su & Hsu-Ling Chang & Yahn-Shir Chen, 2007. "Stock Prices and Dividends in Taiwan's Stock Market: Evidence Based on Time-Varying Present Value Model," Economics Bulletin, Economics Bulletin, vol. 7(4), pages 1-12. [Downloadable!]
  9. Tsangyao Chang & Hsu-Ling Chang & Hsiao-Ping Chu & Chi-Wei Su, 2005. "Does Rational Bubbles Exist in the Taiwan Stock Market? Evidence from a Nonparametric Cointegration Test," Economics Bulletin, Economics Bulletin, vol. 3(41), pages 1-9. [Downloadable!]
  10. Cars Hommes & Sebastiano Manzan, 2006. "Testing for Nonlinear Structure and Chaos in Economic Time. A Comment," Tinbergen Institute Discussion Papers 06-030/1, Tinbergen Institute. [Downloadable!]
  11. Kian-Ping Lim & Venus Khim-Sen Liew, 2003. "Testing for Non-Linearity in ASEAN Financial Markets," Finance 0308002, EconWPA. [Downloadable!]
  12. Youwei Li & Bas Donkers, 2004. "The Econometric Analysis of Microscopic Simulation Models," Computing in Economics and Finance 2004 195, Society for Computational Economics. [Downloadable!]
    Other versions:
  13. Theodore Panagiotidis & Gianluigi Pelloni, 2005. "Non-Linearity in the Canadian and US Labour Market: Univariate and Multivariate Evidence from a battery of tests," Discussion Paper Series 2005_8, Department of Economics, Loughborough University, revised Aug 2005. [Downloadable!]
    Other versions:
  14. David Chappell & Theodore Panagiotidis, 2005. "Using the correlation dimension to detect non-linear dynamics: Evidence from the Athens Stock Exchange," Econometrics 0504005, EconWPA. [Downloadable!]
  15. Vitaliy Vandrovych, 2005. "Study of Nonlinearities in the Dynamics of Exchange Rates: Is There Any Evidence of Chaos?," Computing in Economics and Finance 2005 234, Society for Computational Economics. [Downloadable!]
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