Disequilibrium Trade and the Dynamics of Stock Markets
The present work considers pricing and trade dynamics for stock commodity markets, which, unlike flow commodity markets have been little studied, if at all. Concepts and tools in economics are shaped to deal with flow markets, where commodities disappear in each period and then reemerge. This allows one to define unique demand and supply functions and their equilibria. A durable commodity, a stock, in contrast, remains on the market to the next period and may just change owner through exchange. This, however, changes demand and supply functions, and hence the equilibrium state to which a dynamic process may be heading. Dynamic processes are provided with memory of the actual exchange history. We also need to state how disequilibrium trade in stock markets takes place. This is another neglected issue, though a fact of reality. Using a case with only two traders of two stock commodities, and focusing pure trade, it is possible to specify the exact conditions for disequilibrium trade in each step of the dynamic process. In the end any of an infinity of equilibria can be reached, or trade can stick in some disequilibrium point while complex, even chaotic, price dynamics goes on.
KeywordsDisequilibrium trade Durable commodity markets Complex dynamics Multiple equilibria Path dependence
This work has been supported by Ministerio de Economia y Competitividad of Spain, Grant MTM2011-23221, which is hereby gratefully acknowledged. It is also part of the COST IS 1104 Action.
- Keynes, J.M.: The General Theory of Employment, Interest, and Money. MacMillan, London (1936)Google Scholar
- Lindahl, E.: Studies in the Theory of Money and Capital. Farrar & Rinehart, New York (1939)Google Scholar
- Myrdal, G.: Monetary Equilibrium. William Hodge & Co, London (1939)Google Scholar
- Palander, T.F.: On the concepts and methods of the “Stockholm Scool”. Int. Econ. Pap. 3, 5–57 (1941, 1953)Google Scholar
- Samuelson, P.A.: Foundations of Economic Analysis. Harvard University Press, Cambridge (1947)Google Scholar
- Walras, L.: Elements d’économie politique pure. Corbaz, Lausanne (1874–1877)Google Scholar