Nonlinearities and Chaos: A New Analysis of CEE Stock Markets

Abstract

After a long transition period, the Central and Eastern European (CEE) capital markets have consolidated their place in the financial systems. However, little is known about the price behavior and efficiency of these markets. In this context, using a battery of tests for nonlinear and chaotic behavior, we look for the presence of nonlinearities and chaos in five CEE stock markets. We document, in general, the presence of nonlinearities and chaos which questions the efficient market hypothesis. However, if all tests highlight a chaotic behavior for the analyzed index returns, there are noteworthy differences between the analyzed stock markets underlined by nonlinearity tests, which question, thus, their level of significance. Moreover, the results of nonlinearity tests partially contrast the previous findings reported in the literature on the same group of stock markets, showing, thus, a change in their recent behavior, compared with the 1990s.

Empirical Evidence on Testing the Efficient Market Hypothesis in Egypt: Case of Currency Devaluation

“…Moreover, a panel study for 33 countries in developed countries in the period of 1992-2018 using panel root tests provides strong evidence for the weak-form efficiency of stock markets. These results were later refuted by another study done in five central and east European countries using run tests that revealed chaotic and nonlinearity in indices returns which questions the validity of EMH in these countries (Albulescu, Tiwari, & Kyophilavong, 2021).…”

“…Conducting event study methodology can be done generally following two main approaches; the first is to determine the pre and postperiod time intervals and then the date of the event and afterwards abnormal returns following immediately the event occurrence will be calculated (Albulescu, Tiwari, & Kyophilavong, 2021). Hence, the volatility of the market is to be examined over the short-, medium-and long-term using the rolling window regression approach and the chosen event window is to be determined according to the study.…”

Dynamic Analysis and Control of a Financial System with Chaotic Behavior Including Fractional Order

“…x * 3 (11) where: x * 1 , x * 2 , and x * 3 are the desired states. We substituted (11) in (10) and considered defining the errors:…”

“…Following this trend, the number of investigations seeking to explain the influence of structural variations, uncertainties in microeconomic and macroeconomic variations, irregular increases, and effects of parameters on the dynamics of financial and economic systems has grown, as well as the emergence of chaotic behavior [8,9]. The non-linearities and chaotic behavior of stock markets have been investigated by [10,11]. The authors concluded that the analyzed action systems have a chaotic behavior and that their non-linearities must be considered.…”

Government Interventions and Sovereign Bond Market Volatility during COVID-19: A Quantile Analysis

“…On the one hand, any government action may induce additional uncertainty [36], which in turn, leads to an increase in the volatility of government bond markets. On the other hand, several other papers consider government interventions as responsible actions that may curb the adverse effects of crises and uncertainty [37][38][39], which can also be the case for sovereign debt.…”