Evolutionary model of stock markets

Joachim Kaldasch

Physica A: Statistical Mechanics and its Applications, 2014, vol. 415, issue C, 449-462

Abstract: The paper presents an evolutionary economic model for the price evolution of stocks. Treating a stock market as a self-organized system governed by a fast purchase process and slow variations of demand and supply the model suggests that the short term price distribution has the form a logistic (Laplace) distribution. The long term return can be described by Laplace–Gaussian mixture distributions. The long term mean price evolution is governed by a Walrus equation, which can be transformed into a replicator equation. This allows quantifying the evolutionary price competition between stocks. The theory suggests that stock prices scaled by the price over all stocks can be used to investigate long-term trends in a Fisher–Pry plot. The price competition that follows from the model is illustrated by examining the empirical long-term price trends of two stocks.

Keywords: Stock price evolution; Return distribution; Evolutionary finance; Competition; Walrus equation; Laplace–Gaussian mixtures (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437114007158
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
Working Paper: Evolutionary Model of Stock Markets (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:415:y:2014:i:c:p:449-462

DOI: 10.1016/j.physa.2014.08.037

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().