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The Evolution Dynamic and Long-Run Equilibrium in a Stock Market with Heterogeneous Traders

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Abstract

This paper uses ideas from biological evolution to analyze the evolution of the securities market in which rational and irrational traders coexist. A market evolutionary model is developed to describe the dynamic trajectories of rational and irrational traders’ wealth. The main question is, are irrational traders eliminated as the securities market evolves. The paper considers the impact of new entrants on the security market long-term equilibrium. In addition, it discusses the existence and uniqueness of the long-term equilibrium The paper finds that, under some market conditions, irrational traders could survive in the long run.

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Acknowledgments

We gratefully acknowledge editors of Journal of Systems Scienence and Systems Engineering, and two anonymous referees for their valuable comments and suggestions. This paper is supported by the National Natural Science Foundation of China under Grant No. 71790594 and Programfor interdisciplinary direction team in Zhongyuan University of Technology, China.

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Authors and Affiliations

  1. College of Management and Economics, Tianjin University, Tianjin, 300072, China

    Pengju Zhao & Wei Zhang

  2. System and Industrial Engineering Research Center of Zhongyuan University of Technology, Zhengzhou, 450007, China

    Pengju Zhao

  3. Business School, Zhengzhou university, Zhengzhou, 450000, China

    Yumin Liu

Authors
  1. Pengju Zhao
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  2. Wei Zhang
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  3. Yumin Liu
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Corresponding author

Correspondence to Pengju Zhao.

Additional information

Pengju Zhao is an associate professor of Zhongyuan University of Technology, doctor degree ofNorthwestern Polytechnical University. Research direction: financial risk management, behavioral finance, fixed income bond.

Wei Zhang is a professor of Economics and Management School of Tianjin University, Doctor’s tutor, research direction: computational experimental finance, financial risk management, venture capital financing.

Yumin Liu is a professor of Business School of Zhengzhou University, Doctor’s tutor, research direction: quality management, statistical analysis.

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Zhao, P., Zhang, W. & Liu, Y. The Evolution Dynamic and Long-Run Equilibrium in a Stock Market with Heterogeneous Traders. J. Syst. Sci. Syst. Eng. 29, 55–67 (2020). https://doi.org/10.1007/s11518-019-5426-8

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  • DOI: https://doi.org/10.1007/s11518-019-5426-8

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