Pathways to Randomness in the Economy: Emergent Nonlinearity and Chaos in Economics and Finance
The 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 orgainizing concepts not only for discussion of nonlinearity testing in time series econometrics 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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|Date of creation:||Feb 1993|
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Web page: http://www.santafe.edu/sfi/publications/working-papers.html
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