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Non-Linearity and Chaotic Behaviour in Cyprus Stock Market

International Journal of Financial Management

Volume 5 Issue 4

Published: 2015
Author(s) Name: Athina Bougioukou | Author(s) Affiliation: Tech. Educational Inst. of Tech.Inst. of Stereas Elladas,Dept. of Acc.&Finance,Psahna Evoia,Greece
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Abstract

The intention of this research is to investigate the aspect of non-linearity and chaotic behavior of the Cyprus stock market. For this purpose, we use non-linearity and chaos theory. We perform BDS, Hinich-Bispectral tests and compute Lyapunov exponent of the Cyprus General index. The results show that existence of non-linear dependence and chaotic features as the maximum Lyapunov exponent was found to be positive. This study is important because chaos and efficient market hypothesis are mutually exclusive aspects. The efficient market hypothesis which requires returns to be independent and identically distributed (i.i.d.) cannot be accepted.

Keywords: Efficient Market Hypothesis, Nonlinear Dependence, Chaos in Financial Time-Series

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