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Non-equilibrium stochastic model for stock exchange market

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  • Kim, Yup
  • Kwon, Ikhyun
  • Yook, Soon-Hyung

Abstract

We study the effect of the topology of industrial relationship (IR) between the companies in a stock exchange market on the universal features in the market. For this we propose a stochastic model for stock exchange markets based on the behavior of technical traders. From the numerical simulations we measure the return distribution, P(R), and the autocorrelation function of the volatility, C(T), and find that the observed universal features in real financial markets are originated from the heterogeneity of IR network topology. Moreover, the heterogeneous IR topology can also explain Zipf–Pareto’s law for the distribution of market value of equity in the real stock exchange markets.

Suggested Citation

  • Kim, Yup & Kwon, Ikhyun & Yook, Soon-Hyung, 2013. "Non-equilibrium stochastic model for stock exchange market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(23), pages 5907-5913.
    • Handle: RePEc:eee:phsmap:v:392:y:2013:i:23:p:5907-5913
    DOI: 10.1016/j.physa.2013.07.032
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    References listed on IDEAS

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    1. Bouchaud,Jean-Philippe & Potters,Marc, 2003. "Theory of Financial Risk and Derivative Pricing," Cambridge Books, Cambridge University Press, number 9780521819169.
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