Document Type

Working Paper

Publication Date



Regional Research Institute

Document Number



Regional Research Institute


The nonlinear testing and modeling of economic and financial time series has increased substantially in recent years, enabling us to better understand market and price behavior, risk and the formation of expectations. Such tests have also been applied to commodity market behavior, providing evidence of heteroskedasticity, chaos, long memory, cyclicity, etc. More recently the evaluation of empirical financial models suggests that chaotic structure in asset prices can result from the heterogeneity of trader’s expectations. The present evaluation of futures price behavior confirms that the resulting price movements can be random, suggesting noisy chaotic behavior. The root cause of this behavior is the endogenous forces in the market, i.e. the interactions between heterogeneous investors. Thus, prices could follow a mean process that is dynamic chaotic, coupled with a variance that follows a GARCH process. Our conclusion is that models of this type could be constructed to assist in forecasting prices over short run but not over long run time periods.