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Chaos and Nonlinear Dynamics: Application to Financial Markets
Author(s) -
HSIEH DAVID A.
Publication year - 1991
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1991.tb04646.x
Subject(s) - chaotic , financial market , nonlinear system , stock market , stock market crash , chaos (operating system) , economics , stock (firearms) , financial economics , crash , dynamics (music) , statistical physics , computer science , finance , physics , history , management , context (archaeology) , computer security , archaeology , quantum mechanics , programming language , acoustics
After the stock market crash of October 19, 1987, interest in nonlinear dynamics, especially deterministic chaotic dynamics, has increased in both the financial press and the academic literature. This has come about because the frequency of large moves in stock markets is greater than would be expected under a normal distribution. There are a number of possible explanations. A popular one is that the stock market is governed by chaotic dynamics. What exactly is chaos and how is it related to nonlinear dynamics? How does one detect chaos? Is there chaos in financial markets? Are there other explanations of the movements of financial prices other than chaos? The purpose of this paper is to explore these issues.