An Out-of-Sample Test for Nonlinearity in Financial Time Series: An Empirical Application |
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Authors: | Theodore Panagiotidis |
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Affiliation: | (1) Department of Economics, University of Macedonia, 156 Egnatia Street, Thessaloniki, 54006, Greece |
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Abstract: | This paper employs a local information, nearest neighbour forecasting methodology to test for evidence of nonlinearity in
financial time series. Evidence from well-known data generating process are provided and compared with returns from the Athens
stock exchange given the in-sample evidence of nonlinear dynamics that has appeared in the literature. Nearest neighbour forecasts
fail to produce more accurate forecasts from a simple AR model. This does not substantiate the presence of in-sample nonlinearity
in the series. |
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Keywords: | |
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