NONLINEAR DYNAMICS IN REAL-TIME EQUITY MARKET INDEXES - EVIDENCE FROMTHE UNITED-KINGDOM

This paper tests for the presence of nonlinear dependence and chaos in real-time returns on the U.K. FTSE-100 Index, using a six month sampl e of about 60,000 observations. Since there is clear evidence of nonli nearity, we follow other researchers in this field by applying the sam e tests to the residuals from a GARCH process fitted to the data, in o rder to find out whether or not the nonlinearity can be explained by t his type of model. In the event, our results suggest that GARCH can ex plain some but not all of the observed nonlinear dependence.