Nonlinear event detection in the Chilean stock market

Abstract

This study searches for economic and political events that may explain the episodic nonlinearities detected in the returns series of the Chilean stock market index. This methodology is a reverse form of event study. After applying the Hinich portmanteau bicorrelation test to detect episodes of nonlinear behaviour of the index, we investigate what might be the explanation of this behaviour. Our findings may help to explain the difficulty to forecast asset returns. We also shed some light into the major political and economic events that contribute to the numerous short bursts of nonlinear dependence in the Chilean stock market.

Acknowledgements

We would like to thank the helpful comments of Claudia Blanco, Enrique Caviedes and Carlos Maquieira. We would like to thank Joaquin Santibañez for his work as research assistant. This paper was finished while Rafael Romero-Meza was changing from the University of Chile to the Universidad Adolfo Ibáñes.

Notes

¹ For a mathematical derivation of this statistics and its small sample properties see Hinich and Patterson (2005) and Hinich (1996).

² In this study the threshold level was set at 0.01. The level of significance is the bootstrapped thresholds that correspond to 0.01.