Structural Change in the Investment Function

Triplett, Russell E.; Ozdemir, Nilufer; Mason, Paul M.

doi:10.1007/s12197-021-09564-6

Cited by 1 publication

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“…Thus, analyzing financial markets from other countries is a natural next step. Another question is how the detected pattern is connected to long-term trends in demographics and the inter-industry reconfiguration of firms away from traditional manufacturing [78]. The business ecosystem perspective is also useful to develop quantitative methods to forecast future market values of firms [79], or to define fitnesses for firms and disentangle the effects of selection and the environment in the evolutionary dynamics of financial markets [80].…”

Section: Discussionmentioning

confidence: 99%

Productivity vs. Evenness in the U.S. Financial Market: A Business Ecosystem Perspective

Fort

2023

Entropy

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This paper starts by presenting an empirical finding in the U.S. stock market: Between 2001 and 2021, high productivity was achieved when the Shannon evenness—measuring the inverse of concentration—dropped. Conversely, when the Shannon evenness soared, productivity plunged. The same inverse relationship between evenness and productivity has been observed in several ecosystems. This suggests explaining this result by adopting the business ecosystem perspective, i.e., regarding the tangle of interactions between companies as an ecological network, in which companies play the role of species. A useful strategy to model such ecological communities is through ensembles of synthetic communities of pairwise interacting species, whose dynamics is described by the Lotka–Volterra generalized equations. Each community is specified by a random interaction matrix whose elements are drawn from a uniform distribution centered around 0. It is shown that the inverse relationship between productivity and evenness can be generated by varying the strength of the interaction between companies. When the strength increases, productivity increases and simultaneously the market evenness decreases. Conversely, when the strength decreases, productivity decreases and evenness increases. This strength can be interpreted as reflecting the looseness of monetary policy, thus providing a link between interest rates and market structure.

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Section: Discussionmentioning

confidence: 99%

Productivity vs. Evenness in the U.S. Financial Market: A Business Ecosystem Perspective

Fort

2023

Entropy

View full text Add to dashboard Cite

show abstract

Structural Change in the Investment Function

Cited by 1 publication

References 67 publications

Productivity vs. Evenness in the U.S. Financial Market: A Business Ecosystem Perspective

Productivity vs. Evenness in the U.S. Financial Market: A Business Ecosystem Perspective

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