Dynamical explanation for the emergence of power law in a stock market model

Moshe Levy, Sorin Solomon, Givat Ram

Research output: Contribution to journalArticlepeer-review

74 Scopus citations


Power laws are found in a wide range of different systems: From sand piles to word occurrence frequencies and to the size distribution of cities. The natural emergence of these power laws in so many different systems, which has been called self-organized criticality, seems rather mysterious and awaits a rigorous explanation. In this letter we study the stationary regime of a previously introduced dynamical microscopic model of the stock market. We find that the wealth distribution among investors spontaneously converges to a power law. We are able to explain this phenomenon by simple general considerations. We suggest that similar considerations may explain self-organized criticality in many other systems. They also explain the Levy distribution.

Original languageAmerican English
Pages (from-to)65-72
Number of pages8
JournalInternational Journal of Modern Physics C
Issue number1
StatePublished - Feb 1996
Externally publishedYes


  • Complex Systems
  • Computer Simulations
  • Power Laws
  • Self-Organized Criticality
  • Stock Market


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