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Bifurcation Routes in Financial Markets


  • Author Miloslav

    (Vosvrda Academy of Sciencews of the Czech Republic)


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.

Suggested Citation

  • Author Miloslav, 2001. "Bifurcation Routes in Financial Markets," Finance 0109001, University Library of Munich, Germany.
  • 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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    References listed on IDEAS

    1. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
    2. C. H. Hommes, 2001. "Financial markets as nonlinear adaptive evolutionary systems," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 149-167.
    3. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
    4. Miloslav Vošvrda, 2001. "Bifurcation Routes And Economic Stability," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 8(14).
    5. 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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    More about this item


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

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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