Martingales, nonlinearity, and chaos

In this article we provide a review of the literature with respect to the e fficient markets hypothesis and chaos. In doing so, we contrast the marting ale behavior of asset prices to nonlinear chaotic dynamics, discuss some re cent techniques used in distinguishing between probabilistic and determinis tic behavior in asset prices, and report some evidence. Moreover, we look a t the controversies that have arisen about the available tests and results, and raise the issue of whether dynamical systems theory is practical in fi nance. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classificati on: C22; G14.