CPM Report No.: 01-79
By: Scott Moss
Date: 1st March 2001
The purpose of this paper is to demonstrate that the interaction excluded from conventional economic theory gives rise to the distributions of data observed in real markets. The well known “fat-tailed” (leptokurtic) distributions found in high frequency time series data for financial markets is shown to characterise high frequency retail market data as well. This and other statistical signatures of real markets are replicated in an abstract simulation model of markets in which intermediaries (brokers or jobbers) can function. It is shown that a high density of agents in the social network is necessary for intermediation to be viable and for the preponderance of demands to be satisfied. Moreover, the leptokurtic statistical signature characterises only markets satisfying that density condition.
Keywords: leptokurtosis, intermediation, intermediated markets, social simulation, statistical signatures, self organised criticality