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Martingales, Nonlinearity, And Chaos

Author

Listed:
  • William Barnett

    (Department of Economics, University of Kansas)

  • Apostolos Serletis

    (Department of Economics, The University of Calgary)

Abstract

In this article 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 Barnett & Apostolos Serletis, 2012. "Martingales, Nonlinearity, And Chaos," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201225, University of Kansas, Department of Economics, revised Sep 2012.
    • Handle: RePEc:kan:wpaper:201225
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    File URL: http://www2.ku.edu/~kuwpaper/2009Papers/201225.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Efficient markets hypothesis; Chaotic dynamics;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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