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Power Laws of Wealth, Market Order Volumes and Market Returns

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 نشر من قبل Sorin Solomon
 تاريخ النشر 2001
  مجال البحث فيزياء مالية
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Using the Generalised Lotka Volterra (GLV) model adapted to deal with muti agent systems we can investigate economic systems from a general viewpoint and obtain generic features common to most economies. Assuming only weak generic assumptions on capital dynamics, we are able to obtain very specific predictions for the distribution of social wealth. First, we show that in a fair market, the wealth distribution among individual investors fulfills a power law. We then argue that fair play for capital and minimal socio-biological needs of the humans traps the economy within a power law wealth distribution with a particular Pareto exponent $alpha sim 3/2$. In particular we relate it to the average number of individuals L depending on the average wealth: $alpha sim L/(L-1)$. Then we connect it to certain power exponents characterising the stock markets. We obtain that the distribution of volumes of the individual (buy and sell) orders follows a power law with similar exponent $beta sim alpha sim 3/2$. Consequently, in a market where trades take place by matching pairs of such sell and buy orders, the corresponding exponent for the market returns is expected to be of order $gamma sim 2 alpha sim 3$. These results are consistent with recent experimental measurements of these power law exponents ([Maslov 2001] for $beta$ and [Gopikrishnan et al. 1999] for $gamma$).



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