IDEAS home Printed from https://ideas.repec.org/p/arx/papers/cond-mat-0005416.html
   My bibliography  Save this paper

Market Ecology, Pareto Wealth Distribution and Leptokurtic Returns in Microscopic Simulation of the LLS Stock Market Model

Author

Listed:
  • Sorin Solomon
  • Moshe Levy

Abstract

The LLS stock market model is a model of heterogeneous quasi-rational investors operating in a complex environment about which they have incomplete information. We review the main features of this model and several of its extensions. We study the effects of investor heterogeneity and show that predation, competition, or symbiosis may occur between different investor populations. The dynamics of the LLS model lead to the empirically observed Pareto wealth distribution. Many properties observed in actual markets appear as natural consequences of the LLS dynamics: truncated Levy distribution of short-term returns, excess volatility, a return autocorrelation "U-shape" pattern, and a positive correlation between volume and absolute returns.

Suggested Citation

  • Sorin Solomon & Moshe Levy, 2000. "Market Ecology, Pareto Wealth Distribution and Leptokurtic Returns in Microscopic Simulation of the LLS Stock Market Model," Papers cond-mat/0005416, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0005416
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/cond-mat/0005416
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
    2. Sorin Solomon, 2000. "Generalized Lotka-Volterra (GLV) Models of Stock Markets," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 3(01n04), pages 301-322.
    3. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    4. Levy, Shiki Moshe, 1997. "Are Rich People Smarter?," University of California at Los Angeles, Anderson Graduate School of Management qt9b52n3d6, Anderson Graduate School of Management, UCLA.
    5. Sorin Solomon & Moshe Levy, 1996. "Spontaneous Scaling Emergence In Generic Stochastic Systems," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 7(05), pages 745-751.
    6. Levy, Moshe & Levy, Haim & Solomon, Sorin, 1994. "A microscopic model of the stock market : Cycles, booms, and crashes," Economics Letters, Elsevier, vol. 45(1), pages 103-111, May.
    7. T. Hellthaler, 1995. "The Influence Of Investor Number On A Microscopic Market Model," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 6(06), pages 845-852.
    8. Levy, Moshe & Solomon, Sorin, 1997. "New evidence for the power-law distribution of wealth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 242(1), pages 90-94.
    9. Sorin Solomon, 1998. "Stochastic Lotka-Volterra Systems of Competing Auto-Catalytic Agents Lead Generically to Truncated Pareto Power Wealth Distribution, Truncated Levy Distribution of Market Returns, Clustered Volatility," Papers cond-mat/9803367, arXiv.org.
    10. Egenter, E. & Lux, T. & Stauffer, D., 1999. "Finite-size effects in Monte Carlo simulations of two stock market models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 268(1), pages 250-256.
    11. Moshe Levy & Sorin Solomon, 1996. "Power Laws Are Logarithmic Boltzmann Laws," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 7(04), pages 595-601.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chi Zhang & Zhengning Pu & Qin Zhou, 2018. "Sustainable Energy Consumption in Northeast Asia: A Case from China’s Fuel Oil Futures Market," Sustainability, MDPI, vol. 10(1), pages 1-14, January.
    2. Michael Boss & Helmut Elsinger & Martin Summer & Stefan Thurner, 2004. "An Empirical Analysis of the Network Structure of the Austrian Interbank Market," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 7, pages 77-87.
    3. C. García & J. García Pérez & J. Dorp, 2011. "Modeling heavy-tailed, skewed and peaked uncertainty phenomena with bounded support," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 20(4), pages 463-486, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2001. "Microscopic Models of Financial Markets," Papers cond-mat/0110354, arXiv.org.
    2. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2007. "Agent-based Models of Financial Markets," Papers physics/0701140, arXiv.org.
    3. Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186, Elsevier.
    4. Johann Lussange & Ivan Lazarevich & Sacha Bourgeois-Gironde & Stefano Palminteri & Boris Gutkin, 2021. "Modelling Stock Markets by Multi-agent Reinforcement Learning," Computational Economics, Springer;Society for Computational Economics, vol. 57(1), pages 113-147, January.
    5. Solomon, Sorin & Richmond, Peter, 2001. "Power laws of wealth, market order volumes and market returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 188-197.
    6. Lux, Thomas, 2008. "Applications of statistical physics in finance and economics," Kiel Working Papers 1425, Kiel Institute for the World Economy (IfW Kiel).
    7. Hommes, C.H., 2005. "Heterogeneous Agent Models in Economics and Finance, In: Handbook of Computational Economics II: Agent-Based Computational Economics, edited by Leigh Tesfatsion and Ken Judd , Elsevier, Amsterdam 2006," CeNDEF Working Papers 05-03, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    8. Thomas Lux, 2009. "Applications of Statistical Physics in Finance and Economics," Chapters, in: J. Barkley Rosser Jr. (ed.), Handbook of Research on Complexity, chapter 9, Edward Elgar Publishing.
    9. Thomas Delcey, 2019. "Samuelson vs Fama on the Efficient Market Hypothesis: The Point of View of Expertise [Samuelson vs Fama sur l’efficience informationnelle des marchés financiers : le point de vue de l’expertise]," Post-Print hal-01618347, HAL.
    10. Alexander S. Sangare, 2005. "Efficience des marchés : un siècle après Bachelier," Revue d'Économie Financière, Programme National Persée, vol. 81(4), pages 107-132.
    11. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    12. A. Corcos & J-P Eckmann & A. Malaspinas & Y. Malevergne & D. Sornette, 2002. "Imitation and contrarian behaviour: hyperbolic bubbles, crashes and chaos," Quantitative Finance, Taylor & Francis Journals, vol. 2(4), pages 264-281.
    13. Dmitry Kulikov, 2012. "Testing for Rational Speculative Bubbles on the Estonian Stock Market," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 4(1).
    14. Chakrabarti, Anindya S., 2015. "Stochastic Lotka-Volterra equations: A model of lagged diffusion of technology in an interconnected world," IIMA Working Papers WP2015-08-05, Indian Institute of Management Ahmedabad, Research and Publication Department.
    15. Campbell, John Y., 2001. "Why long horizons? A study of power against persistent alternatives," Journal of Empirical Finance, Elsevier, vol. 8(5), pages 459-491, December.
    16. Maximilian Beikirch & Torsten Trimborn, 2020. "Novel Insights in the Levy-Levy-Solomon Agent-Based Economic Market Model," Papers 2002.10222, arXiv.org.
    17. Keith Anderson & Chris Brooks & Sotiris Tsolacos, 2011. "Testing for Periodically Collapsing Rational Speculative Bubbles in U.S. REITs," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 17(3), pages 227-241, January.
    18. J. Harold Mulherin, 1990. "Regulation, Trading Volume and Stock Market Volatility," Revue Économique, Programme National Persée, vol. 41(5), pages 923-938.
    19. Perepelitsa, Misha & Timofeyev, Ilya, 2019. "Asynchronous stochastic price pump," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 516(C), pages 356-364.
    20. Chung, Heetaik & Lee, Bong-Soo, 1998. "Fundamental and nonfundamental components in stock prices of Pacific-Rim countries," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 321-346, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:cond-mat/0005416. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.