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Testing for efficiency and non-linearity in market and natural time series

Teo Jasic and Douglas Wood

Journal of Applied Statistics, 2006, vol. 33, issue 2, 113-138

Abstract: Time series in traded markets such as currencies and securities involve supply/demand interaction, so they might be expected to contain distinctive and identifiable structures in comparison with data based on natural phenomena such as river flows or sunspots. This paper tests this proposition using standard econometric tests including variance ratios, modified rescaled range (R/S) ratios and BDS statistics together with non-linear prediction models. Four time series of each type (market or natural) are subject to a battery of tests for random walk and non-linear dependence. Surprisingly, the tests provide no reliable discrimination between the two types of series or reveal any embedded specification differences.

Keywords: Efficiency tests; non-linearity; neural networks; market versus natural data (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1080/02664760500250370

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