This paper tests for the presence of nonlinear dependence and chaos in real-time returns on the U.K. FTSE-100 Index, using a six month sample of about 60,000 observations. Since there is clear evidence of nonlinearity, we follow other researchers in this field by applying the same tests to the residuals from a GARCH process fitted to the data, in order to find out whether or not the nonlinearity can be explained by this type of model. In the event, our results suggest that GARCH can explain some but not all of the observed nonlinear dependence.
