Chaoticity Versus Stochasticity in Financial Markets: Are Daily S&P 500 Return Dynamics Chaotic?
87 Pages Posted: 15 Mar 2021
Date Written: March 11, 2021
In this study, we present a combinatory chaos analysis of daily wavelet-filtered (denoised) S&P 500 returns (2000–2020) compared with respective surrogate datasets, Brownian motion returns and a Lorenz system realisation. We show that the dynamics of the S&P 500 return series consist of an almost equally divided combination of stochastic and deterministic chaos. The strange attractor of the S&P 500 return system is graphically displayed via Takens’ embedding and by spectral embedding in combination with Laplacian Eigenmaps. For the field of nonlinear and financial chaos research, we present a bibliometric analysis paired with citation network analysis. We critically discuss implications and future prospects.
Keywords: nonlinear dynamics, chaos, financial chaos, recurrence analysis, financial predictions, financial markets
JEL Classification: G1, C01, C02, C22, C18
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