NONLINEAR DEPENDENCE IN FINNISH STOCK RETURNS

Past research into the evolution of Finnish stock returns focuses on m odeling linear and nonlinear dependence using various ARIMA and GARCH formulations, respectively. This paper extends the extant work by usin g Grassberger-Procaccia correlation dimensions to explore the nature o f the nonlinear dynamics in daily Finnish stock returns during the 197 0s and 1980s. Nonlinear behavior in both periods is evident. A simple GARCH model removes the nonlinearity in the first decade and dramatica lly reduces the nonlinearity in the second period. This supports the n otion that Finnish stock returns exhibit nonlinear dependence but that the form of dependence is not chaotic.