Gas-kinetic theory and Boltzmann equation of share price within an equilibrium market hypothesis and ad hoc strategy

Marcel Ausloos

Physica A: Statistical Mechanics and its Applications, 2000, vol. 284, issue 1, 385-392

Abstract: Recent observations have indicated that the traditional equilibrium market hypothesis (EMH; also known as Efficient Market Hypothesis) is unrealistic. It is shown here that it is the analog of a Boltzmann equation in physics, thus having some bad properties of mean-field approximations like a Gaussian distribution of price fluctuations. A kinetic theory for prices can be simply derived, considering in a first approach that market actors have all identical relaxation times, and solved within a Chapman–Enskog like formalism. In closing the set of equations, (i) an equation of state with a pressure and (ii) the equilibrium (isothermal) equation for the price (taken as the order parameter) of a stock as a function of the volume of money available are obtained.

Keywords: Boltzmann equation; Equilibrium market; Share price; Econophysics; Order parameter (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:284:y:2000:i:1:p:385-392

DOI: 10.1016/S0378-4371(00)00290-9

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