Abstract
In this paper we study the adaptive rational equilibrium dynamics in a simple asset pricing model introduced by Brock and Hommes (System Dynamics in Economic and Financial Models, Wiley, Chichester, 1997, pp. 3–44; Journal of Economic Dynamics and Control, 22, 1998, 1235–1274). Traders have heterogeneous expectations concerning future prices and update their beliefs according to a risk adjusted performance measure and to market conditions. Further, also their expectations about conditional variances of returns vary over time. We show that even for the simple case where agents can only choose between two different predictors complicated dynamics arise and we analyse the bifurcation routes to chaos.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
