Chaos in Financial Markets


Chaos has a precise meaning within the world of physics and non-linear mathematics, but applications of ‘chaos theory’ in other domains (in management, for example) are generally bogus. Mathematical definitions of chaos vary, what follows is an informal one.

Chaos exists when a deterministic dynamical system is sensitive to initial conditions and gives rise to effectively unpredictable long-term behaviour.

Note that high dimensional chaos is indistinguishable from a stochastic process, we’re interested in whether markets exhibit low-dimensional chaos.

Literature Review


There is little evidence of low-dimensional chaos in financial markets.



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