In Search of Deterministic Complex Patterns in Commodity Prices

  • Arjun Chatrath
  • Bahram Adrangi
  • Kanwalroop K. Dhanda
Part of the Applied Optimization book series (APOP, volume 74)


The possibility and implications of chaotic structure in commodity prices is examined. Chaos will imply that prices are deterministic, so that technical rules are more likely to succeed in short run price projections. On the other hand, chaos will necessarily imply that prices are nonlinear and highly sensitive to initial conditions, so that long-term price projections are treacherous. The study conducts tests for the presence of low-dimensional chaotic structure in the futures prices of four important agricultural commodities. Though there is strong evidence of nonlinear dependence, the evidence is not consistent with chaos. The dimension estimates for the commodity futures series are generally much higher than would be for low dimension chaotic series. The test results indicate that ARCH-type processes, with controls for seasonality and contract-maturity effects, explain much of the nonlinearities in the data. The study makes a case that employing seasonally adjusted price series is important in obtaining robust results via some of the existing tests for chaotic structure. Finally, maximum likelihood methodologies, that are robust to the nonlinear dynamics, lend strong support the Samuelson hypothesis of maturity effects in futures price-changes.


chaos seasonality 


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Copyright information

© Springer Science+Business Media Dordrecht 2002

Authors and Affiliations

  • Arjun Chatrath
    • 1
  • Bahram Adrangi
    • 1
  • Kanwalroop K. Dhanda
    • 1
  1. 1.The Robert B. Pamplin Jr. School of BusinessUniversity of PortlandPortlandUSA

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