Abstract
Introduces new techniques based on chaos theory that may help in detecting low-dimensional chaos or other types of nonlinearity masquerading as randomness in economic and financial data sets. Sets out the basic concepts of chaos theory, such as deterministic data generators. Describes the BDS statistic, a new test for nonlinearity. Applies the BDS test to stock returns and foreign exchange rates. Relates the work to other areas of nonlinear tests, provides suggestions for future research, and speculates on the future evolution of the subject and its future relevance to economics and finance. Brock and LeBaron are at the University of Wisconsin, Madison. Hsieh is at the Fuqua School of Business, Duke University. Index.