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Evolutionary model of stock markets

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  • Kaldasch, Joachim

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.

Suggested Citation

  • Kaldasch, Joachim, 2014. "Evolutionary model of stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 415(C), pages 449-462.
    • Handle: RePEc:eee:phsmap:v:415:y:2014:i:c:p:449-462
    DOI: 10.1016/j.physa.2014.08.037
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    Cited by:

    1. Kaldasch, Joachim, 2015. "Dynamic Model of the Price Dispersion of Homogeneous Goods," MPRA Paper 64723, University Library of Munich, Germany.
    2. Kaldasch, Joachim, 2015. "Dynamic Model of Markets of Homogenous Non-Durables," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 9(3), pages 1-12.
    3. Kaldasch, Joachim, 2015. "The Product Life Cycle of Durable Goods," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 10(2), pages 1-17.
    4. Kaldasch, Joachim, 2015. "Dynamic Model of Markets of Successive Product Generations," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 10(3), pages 1-15.

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