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 language | English |
|---|---|
| Title of host publication | The Economy as an Evolving Complex System, III |
| Subtitle of host publication | Current Perspectives and Future Directions |
| Publisher | Oxford University Press |
| ISBN (Electronic) | 9780199850495 |
| ISBN (Print) | 9780195162592 |
| DOIs | |
| State | Published - 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
