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Power law in market capitalization during Dot-com and Shanghai bubble periods

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  • Mizuno, Takayuki
  • Ohnishi, Takaaki
  • Watanabe, Tsutomu

Abstract

The distributions of market capitalization in the NASDAQ and Shanghai stock exchanges from 1990 to 2015 have a fat upper tail that follows a power law function. The power law index, which fluctuates around one depending on the economic conditions, became small during the dot-com and Shanghai bubble periods. By using the regression coefficient of random forests for market capitalization and income statement items, we found that net assets are most reflected in market capitalization for companies listed in NASDAQ. The distribution of the price book-value ratio (PBR), which is defined as market capitalization divided by net assets, also got fat during the bubble periods. These results suggest that speculative money was excessively concentrated on specific stocks during such periods.

Suggested Citation

  • Mizuno, Takayuki & Ohnishi, Takaaki & Watanabe, Tsutomu, 2016. "Power law in market capitalization during Dot-com and Shanghai bubble periods," HIT-REFINED Working Paper Series 60, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:remfce:60
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27965/wp060.pdf
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    References listed on IDEAS

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    Cited by:

    1. Mizuno, Takayuki & Ohnishi, Takaaki & Watanabe, Tsutomu, 2017. "Stock market bubble detection based on the price dispersion among similar listed Firms," HIT-REFINED Working Paper Series 67, Institute of Economic Research, Hitotsubashi University.
    2. Takayuki Mizuno & Takaaki Ohnishi & Tsutomu Watanabe, 2019. "Detecting stock market bubbles based on the cross-sectional dispersion of stock prices," Working Papers on Central Bank Communication 010, University of Tokyo, Graduate School of Economics.

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    Keywords

    Power law; Zipf's law; Market capitalization; Asset bubble; Stock market; Econophysics; PACS:G010; PACS:D300;
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