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The Economy as an Evolving Complex System, IIICurrent Perspectives and Future Directions$
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Lawrence E. Blume and Steven N. Durlauf

Print publication date: 2005

Print ISBN-13: 9780195162592

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780195162592.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 06 December 2019

Market Efficiency, the Pareto Wealth Distribution, and the Lévy Distribution of Stock Returns

Market Efficiency, the Pareto Wealth Distribution, and the Lévy Distribution of Stock Returns

Chapter:
(p.101) Market Efficiency, the Pareto Wealth Distribution, and the Lévy Distribution of Stock Returns
Source:
The Economy as an Evolving Complex System, III
Author(s):

Moshe Levy

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195162592.003.0006

The Pareto (power-law) wealth distribution is a robust consequence of a fundamental property of the capital investment process: it is a stochastic multiplicative process. This distribution implies that inequality is driven primarily by chance, rather than by differential investment ability. This chapter shows that the Pareto wealth distribution may explain the Levy distribution of stock returns, which has puzzled researchers for many years. Thus, the Pareto wealth distribution, market efficiency, and the Levy distribution of stock returns are all closely linked.

Keywords:   Pareto wealth distribution, power-law, capital, investment, inequality, Levy distribution, stock

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