A New Test for Chaotic Dynamics Using Lyapunov Exponents

Abstract

We propose a new test to detect chaotic dynamics, based on the stability of the largest Lyapunov exponent from different sample sizes. This test is applied to the data used in the single-blind controlled competition tests for nonlinearity and chaos that were generated by Barnett et al. (1997), as well as to several chaotic series. The results suggest that the new test is particularly effective when compared to other stochastic alternatives (both linear and nonlinear). The test size is one for large samples, although for small sample sizes it diminishes below the nominal size for two out of the three chaotic processes considered, what is not a surprise given some well-known properties of such processes.

Keywords: Chaos, Nonlinear Dynamics, Lyapunov exponents, Bootstrapping

JEL Classification: C13, C14, C15, C22