Stochastic Market Efficiency
LML Resident Fellow Alex Adamou will be speaking at the IMA Conference on Mathematics in Finance on Stochastic Market Efficiency.
When does inequality freeze an economy?
Inequality and its consequences are the subject of intense recent debate. Using a simplified model of the economy, in this seminar we address the relation between inequality and liquidity, the latter understood as the frequency of economic exchanges. Assuming a Pareto distribution of wealth for the agents, that is consistent with empirical findings, we find an inverse relation between wealth inequality and overall liquidity. We show that an increase in the inequality of wealth results in an even sharper concentration of the liquid financial resources. This leads to a congestion of the flow of goods and the arrest of the economy when the Pareto exponent reaches one.