Trading leads to scale-free self-organization
Financial markets display scale-free behavior in many different aspects. The power-law behavior of part of the distribution of individual wealth has been recognized by Pareto as early as the nineteenth century. Heavy-tailed and scale-free behavior of the distribution of returns of different financial assets have been confirmed in a series of works. The existence of a Pareto-like distribution of the wealth of market participants has been connected with the scale-free distribution of trading volumes and price-returns. The origin of the Pareto-like wealth distribution, however, remained obscure. Here we show that in a market where the imbalance of supply and demand determines the direction of prize changes, it is the process of trading itself that spontaneously leads to a self-organization of the market with a Pareto-like wealth distribution for the market participants and at the same time to a scale-free behavior of return fluctuations and trading volume distributions.
Volume (Year): 391 (2012)
Issue (Month): 23 ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/|
When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:391:y:2012:i:23:p:6033-6038. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.