Document Type

Article

Publication Date

1-2009

Publication Title

Economic Modeling

Volume

26

Issue

1

Pages

167-176

Abstract

Several methods have been developed for filtering seasonal influences and extreme returns in financial and economic time series. The theoretical support for these approaches is rather questionable since it focuses on the effects of shocks on prices and not on their sources. Removing such effects modifies the true generating system of market dynamics because of the non-proportional character of non-linearity. Thus, taking into account that the underlying process of economic time series is highly non-linear we cannot be certain a priori what the impact of new information will be on the dynamic structure of a system. The main contribution of this paper is to demonstrate using the methodology of simulations the eventual distortions in time series data arising from the arrival of news when agents follow non-linear trading strategies. We argue that if news can really modify the dynamical behaviour of a system, then the methodology of filtering exogenous distortions needs to be re-examined.

Comments

Author Posting. © Elsevier 2009. This article is posted here by permission of Elsevier for personal use, not for redistribution. The article was published in Economic Modeling, vol. 26, no. 1, 2009. https://doi.org/10.1016/j.econmod.2008.06.008

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This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

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