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Study of Nonlinearities in the Dynamics of Exchange Rates: Is There Any Evidence of Chaos?

  • Vitaliy Vandrovych

    ()

    (International Business School Brandeis University)

This paper studies the dynamics of six major exchange rates, and runs formal tests to distinguish among different types of nonlinearities. In particular we study exchange rate returns, normalized exchange rates and exchange rate volatilities, classifying these series using BDS test, correlation dimensions and maximum Liapunov exponents. Estimates of dimension indicate high complexity in all series, suggesting that the series are either stochastic processes or high dimensional deterministic processes. Though we obtain a number of positive estimates of Liapunov exponent, they are quite small and it seems more appropriate to interpret them as indicating stochastic origin of the series.

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File URL: http://people.brandeis.edu/~vivandr/CCE2005%20paper.pdf
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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 234.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:234
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  1. Hsieh, David A, 1989. "Testing for Nonlinear Dependence in Daily Foreign Exchange Rates," The Journal of Business, University of Chicago Press, vol. 62(3), pages 339-68, July.
  2. Oliver Linton & Mototsugu Shintani, 2003. "Nonparametric Neural Network Estimation of Lyapunov Exponents and a Direct Test for Chaos," STICERD - Econometrics Paper Series /2003/455, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. repec:cup:cbooks:9780521484619 is not listed on IDEAS
  4. repec:att:wimass:9520 is not listed on IDEAS
  5. Oliver Linton & Mototsugu Shintani, 2001. "Is There Chaos in the World Economy? A Nonparametric Test Using Consistent Standard Errors," FMG Discussion Papers dp383, Financial Markets Group.
  6. William A. Barnett & Apostolos Serletis, 1998. "Martingales, Nonlinearity, and Chaos," Econometrics 9805003, EconWPA.
  7. Gilmore, Claire G., 2001. "An examination of nonlinear dependence in exchange rates, using recent methods from chaos theory," Global Finance Journal, Elsevier, vol. 12(1), pages 139-151.
  8. Blake LeBaron, 1994. "Chaos and Nonlinear Forecastability in Economics and Finance," Finance 9411001, EconWPA.
  9. Brzozowska-Rup, Katarzyna & Orłowski, Arkadiusz, 2004. "Application of bootstrap to detecting chaos in financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 317-321.
  10. Scheinkman, Jose A & LeBaron, Blake, 1989. "Nonlinear Dynamics and Stock Returns," The Journal of Business, University of Chicago Press, vol. 62(3), pages 311-37, July.
  11. Bask, Mikael, 2000. "A Positive Lyapunov Exponent in Swedish Exchange Rates?," Umeå Economic Studies 528, Umeå University, Department of Economics.
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