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Bifurcation Routes in Financial Markets

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  • Author Miloslav

    (Vosvrda Academy of Sciencews of the Czech Republic)

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    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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    File URL: http://128.118.178.162/eps/fin/papers/0109/0109001.pdf
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    Bibliographic Info

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

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

    Note: Type of Document - PDF; prepared on PC; to print on HP; pages: 7; figures: included/request from author/draw your own
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    Web page: http://128.118.178.162

    Related research

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

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    References

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    1. James Tobin, 1975. "Keynesian Models of Recession and Depression," Cowles Foundation Discussion Papers 387, Cowles Foundation for Research in Economics, Yale University.
    2. Miloslav Vošvrda, 2001. "Bifurcation Routes And Economic Stability," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 8(14).
    3. Cars H. Hommes, 2001. "Financial Markets as Nonlinear Adaptive Evolutionary Systems," Tinbergen Institute Discussion Papers 01-014/1, Tinbergen Institute.
    4. repec:att:wimass:9530 is not listed on IDEAS
    5. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
    6. Karel Sladký & Jan Kodera & Miloslav Vošvrda, 1999. "Sensitivity And Stability In Dynamical Economic Systems," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 6(9).
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