Traveling Waves in Equity Markets with Rank-Based Entry and Exit

2026-08-27

AI Summary

本文通过使用几何布朗粒子在基于排名的强度下进入和退出来建模股票市场，解决了市场资本分布问题，并利用反应-扩散方程分析了其长期行为。

Abstract

We model equity markets using geometric Brownian particles entering and exiting at rank-dependent intensities. In the many-firm limit, the capital distribution converges to the solution of a reaction-diffusion equation with reaction term built from the intensities. Calibrated on CRSP data, the reaction term is bistable, and the long-run distribution is a traveling wave: we prove existence, uniqueness, and, for constant coefficients, exponential relaxation. Turnover, not drift, stabilizes the calibrated market. With measured volatility, the wave tracks the empirical capital distribution in every decade, determines the capitalization growth of diversity-weighted portfolios, and places the market just inside the boundary of the diverse phase. Turnover reclaims most of what rebalancing gains.

Problem

• equity markets
• rank-based entry and exit
• capital distribution
• traveling wave
• turnover

Innovation

• geometric Brownian particles
• rank-dependent intensities
• reaction-diffusion equation
• bistable reaction term
• traveling wave