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Bifurcation Routes in Financial Markets

  • Author Miloslav

    (Vosvrda Academy of Sciencews of the Czech Republic)

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    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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    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
    Contact details of provider: Web page: http://128.118.178.162

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    1. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
    2. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
    3. Hommes, C.H., 2000. "Financial Markets as Nonlinear Adaptive Evolutionary Systems," CeNDEF Working Papers 00-03, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    4. Miloslav S. Vosvrda, 2001. "Bifurcation Routes and Economic Stability," Computing in Economics and Finance 2001 132, Society for Computational Economics.
    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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