Bifurcation Routes in Financial Markets*/

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-thefundamental-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. An illustrative example is supplied.