Chaos and Nonlinear Forecastability in Economics and Finance

Both academic and applied researchers studying nancial markets and other economic series have become interested in the topic of chaotic dynamics. The possibility of chaos in nancial markets opens important questions for both economic theorists as well as nancial market participants. This paper will clarify the empirical evidence for chaos in nancial markets and macroeconomic series. It will also compare these two concepts from a nancial market perspective contrasting the objectives of the practitioner with those of economic researchers. Finally, the paper will speculate on the impact of chaos and nonlinear modeling on future economic research. The author is grateful to the Alfred P. Sloan Foundation and the University of Wisconsin Graduate School for support. A shortened version of this paper is forthcoming in the Proceedings of the Royal Society.