Testing Chaotic Dynamics via Lyapunov Exponents

Fernando Fernández-Rodríguez, Simon Sosvilla-Rivero and Julián Andrada-Félix

No 2000-07, Working Papers from FEDEA

Abstract: In this paper, we propose a new test, based on the stability of the largest Lyapunov exponent from different sample sizes, to detect chaotic dynamics in economic and financial time series. We apply this new test to the simulated data used in the single-blind controlled competition among tests for for nonlinearity and chaos provided by Barnet et al. (1997), both for small samples (380 observations) and for large samples (2000 observations). The results suggest that the new test has high power against different stochastic alternatives (both linear and nonlinear) and that behaves well in small samples.

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Journal Article: Testing chaotic dynamics via Lyapunov exponents (2005)
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