Deterministic nonlinearity in the stock returns of major European equity markets and the United States

Abstract

Abstract By using recently developed statistical tools designed to overcome some of the limitations often associated with financial data, this study attempts to detect low‐dimensional deterministic chaos in five major European stock markets and the United States. Country indexes exhibiting low‐dimensional deterministic chaos may contain some informational inefficiency; thus, it may be possible to use nonlinear dynamics to predict future stock returns. The results do not provide evidence of the existence of low‐dimensional chaotic systems in any of the examined indexes. As such, the notion of market efficiency in the examined indexes is not threatened by the findings of this study.

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