Abstract
The compass rose pattern in financial data may indicate the presence of a nonlinear, possibly chaotic, data generating mechanism. Analysis reveals that over four equivalent subperiods, from 1996 to 2015, the compass rose pattern in gold returns fades. This feature provides an opportunity to establish which of several data characteristics is consistent with the observed deterioration in the compass rose pattern. The observed monotonic change in pattern quality, the number of different price moves and the number of zero returns are all consistent with a changing trading environment that has led to improvements in financial market efficiency. We also conclude that it is unlikely that the compass rose pattern is the product of an underlying nonlinear structure, since there is evidence of nonlinearity in all time periods, even those where the compass rose pattern in not evident.
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