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

Moshe Levy*

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

16 Scopus citations

Abstract

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.

Original languageAmerican English
Title of host publicationThe Economy as an Evolving Complex System, III
Subtitle of host publicationCurrent Perspectives and Future Directions
PublisherOxford University Press
ISBN (Electronic)9780199850495
ISBN (Print)9780195162592
DOIs
StatePublished - 20 Oct 2005

Bibliographical note

Publisher Copyright:
© 2006 by Oxford University Press, Inc. All rights reserved.

Keywords

  • Capital
  • Inequality
  • Investment
  • Levy distribution
  • Pareto wealth distribution
  • Power-law
  • Stock

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