AudioAficionado.org - The ZIPF Mystery. Zipf's Law!

From population of cities, to languages, online usage, debt, wealth distribution of countries and everything in between, ZIPF law appears to be embedded into every imaginable aspect of our reality with every imaginable sociological as well as geopolitical implications.

Understand ZIPF law, tap into its powers and you rule the world.... :smoking:

Naturally I suspected that even the Stock Market would be tied in to the Zipf Law. Sure enough! :yes:

"This paper considers the reason why share prices follow Zipf’s law. To this
end, we investigate the relationship between company fundamentals and share price.

We use a database containing financial information for approximately
8,000 globally listed companies and estimate company fundamentals using a
panel regression model (two-way fixed effects model).

We find that the distribution of company fundamentals follows Zipf’s law,
and, moreover, that the distribution of fundamentals matches substantially the distribution of actual share prices.

From these findings, we conclude that Zipf’s law for share prices reflects Zipf’s law for company fundamentals.

More generally, to the extent that the stock market has the ability to properly evaluate company fundamentals, the distribution of share price reflects company fundamentals.

We also find that three common financial indicators - dividends
per share, cash flow per share, and book value per share - follow Zipf’s law.

These findings appear to suggest that Zipf’s law for company fundamentals has a robust disposition.

We show a simple stochastic model to explain Zipf’s law for company fundamentals. However, the question of why the extreme intercompany disparities described by Zipf’s law exist in a capitalistic economy remains mysterious and unexplored." :smoking: