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Martingales, Nonlinearity, and Chaos

Author

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  • William A. Barnett

    (Washington University in St. Louis)

  • Apostolos Serletis

    (University of Calgary)

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.

Suggested Citation

  • William A. Barnett & Apostolos Serletis, 1998. "Martingales, Nonlinearity, and Chaos," Econometrics 9805003, University Library of Munich, Germany.
  • 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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    More about this item

    Keywords

    nonlinearity chaos martingales efficient markets;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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