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Bifurcation Routes in Financial Markets

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Author Info
Author Miloslav (Vosvrda Academy of Sciencews of the Czech Republic)
Abstract

The heterogeneity of expectations among traders introduces an important non-linearity into the financial markets. In a series of papers, Brock and Hommes, propose to model economic and financial markets as adaptive belief systems. Asset price fluctuations in adaptive belief systems are characterized by phases of close-to-the-fundamental-price fluctuations, phases of optimism where most agents follow an upward price trend, and phases of pessimism with small or large market crashes. In this paper will be discussed the EMH benchmark and forecasting rules of fundamentals and trend extrapolators. Some illustrative examples are supplied.

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Paper provided by EconWPA in its series Finance with number 0109001.

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Length: 7 pages
Date of creation: 07 Sep 2001
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Handle: RePEc:wpa:wuwpfi:0109001

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Related research
Keywords: heterogeneity of expectations adaptive belief systems forecasting rules fundamentals trend extrapolators equations limit cycles asymptotical stability

Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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  1. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  2. Miloslav S. Vosvrda, 2001. "Bifurcation Routes and Economic Stability," Computing in Economics and Finance 2001 132, Society for Computational Economics.
  3. Hommes, C.H., . "Financial Markets as Nonlinear Adaptive Evolutionary Systems," CeNDEF Working Papers 00-03, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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