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A chaos analysis for Greek and Turkish equity markets

A chaos analysis for Greek and Turkish equity markets Purpose – This paper sets out to apply chaos theory to the prediction of stock returns using Greek and Turkish stock index data. The aim of the analysis is to empirically show whether the markets have informational efficiency, in a comparative perspective. Design/methodology/approach – The research employs Grassberger and Procaccia's methodology in the time series analysis in order to estimate the correlation and minimum embedding dimensions of the corresponding strange attractor. To achieve out of the sample multistep ahead prediction, the paper gives the average for overall neighbours' projections of k ‐steps into the future. Findings – The results display the fact that the chaos theory is suitable to examine the time series of stock index returns. The empirical findings show that the stock markets are efficient in Greece, though in Turkey the market is predictable. The main practical implication of the findings is that the technical analysis works in Turkish markets and it is possible to beat the market, while in Greece the fundamental analysis works for equity trading. Originality/value – The research results have both methodological and practical originality. On the theoretical side, the research shows how the chaos theory can be applied in financial time series analysis. The model is employed with data from Greece, as an EU member; and Turkey, as a candidate to the EU. The fact that the model works in Turkey implies that chaos theory can be used in emerging economies as a prediction model. On the practical side, the paper contributed to the previous literature by providing empirical evidence on market efficiency using a stochastic model. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png EuroMed Journal of Business Emerald Publishing

A chaos analysis for Greek and Turkish equity markets

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Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
1450-2194
DOI
10.1108/14502191011043189
Publisher site
See Article on Publisher Site

Abstract

Purpose – This paper sets out to apply chaos theory to the prediction of stock returns using Greek and Turkish stock index data. The aim of the analysis is to empirically show whether the markets have informational efficiency, in a comparative perspective. Design/methodology/approach – The research employs Grassberger and Procaccia's methodology in the time series analysis in order to estimate the correlation and minimum embedding dimensions of the corresponding strange attractor. To achieve out of the sample multistep ahead prediction, the paper gives the average for overall neighbours' projections of k ‐steps into the future. Findings – The results display the fact that the chaos theory is suitable to examine the time series of stock index returns. The empirical findings show that the stock markets are efficient in Greece, though in Turkey the market is predictable. The main practical implication of the findings is that the technical analysis works in Turkish markets and it is possible to beat the market, while in Greece the fundamental analysis works for equity trading. Originality/value – The research results have both methodological and practical originality. On the theoretical side, the research shows how the chaos theory can be applied in financial time series analysis. The model is employed with data from Greece, as an EU member; and Turkey, as a candidate to the EU. The fact that the model works in Turkey implies that chaos theory can be used in emerging economies as a prediction model. On the practical side, the paper contributed to the previous literature by providing empirical evidence on market efficiency using a stochastic model.

Journal

EuroMed Journal of BusinessEmerald Publishing

Published: May 18, 2010

Keywords: Chaos theory; Equity capital; Stock markets; Greece; Turkey

References