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Detecting Determinism Using Recurrence Quantification Analysis: A Solution to the Problem of Embedding

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  • Aparicio Teresa

    (Universidad de Zaragoza, Spain)

  • Pozo Eduardo F.

    (Universidad de Zaragoza, Spain)

  • Saura Dulce

    (Universidad de Zaragoza, Spain)

Abstract

In this paper, we develop a modified version of the procedure proposed in Aparicio et al. (2008). There, we presented three tests in order to verify the existence of general dependence in time series, within the framework of the Recurrence Quantification Analysis (RQA). Initially, this procedure could be applied both to the original series, and the series transformed by means of the Time Delay Method. However, in the latter case (i.e. if the Time Delay Method is used) recent evidence has shown that spurious structures appear, strongly distorting the results of the indicators of the RQA and, consequently, the conclusions of our tests. Here, we propose a modification of the procedure, which solves this problem, and we apply it successfully to a wide variety of series, simulated and real.

Suggested Citation

  • Aparicio Teresa & Pozo Eduardo F. & Saura Dulce, 2010. "Detecting Determinism Using Recurrence Quantification Analysis: A Solution to the Problem of Embedding," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 15(1), pages 1-12, December.
    • Handle: RePEc:bpj:sndecm:v:15:y:2010:i:1:n:al1
    DOI: 10.2202/1558-3708.1719
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    References listed on IDEAS

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    1. William A. Brock & Cars H. Hommes, 2001. "A Rational Route to Randomness," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 16, pages 402-438, Edward Elgar Publishing.
    2. Teresa Aparicio & Eduardo Pozo & Dulce Saura, 2002. "The nearest neighbour method as a test for detecting complex dynamics in financial series. An empirical application," Applied Financial Economics, Taylor & Francis Journals, vol. 12(7), pages 517-525.
    3. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
    4. Aparicio, Teresa & Pozo, Eduardo F. & Saura, Dulce, 2008. "Detecting determinism using recurrence quantification analysis: Three test procedures," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 768-787, March.
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