Productivity vs. Evenness in the U.S. Financial Market : A Community Ecology Perspective

This paper starts by presenting the empirical finding that in the U.S. stock market, between 2001 and 2021, high productivity was achieved when the Shannon evenness dropped. Conversely, when the Shannon evenness soared productivity plunged. The same inverse relationship between evenness and productivity has been empirically observed in several ecosystems. Therefore, to explain this result I resort to the business ecosystem perspective that regards the tangle of complex interactions between companies as an ecological network, in which companies play the role of species. I thus consider ensembles of synthetic communities of pairwise interacting species whose dynamics is described by the Lotka-Volterra generalized equations. Each community is specified by a random interaction matrix whose elements are drawn from a uniform distribution in an interval [-δ,+δ]. A main finding is that the inverse relationship between productivity and evenness can be generated by varying the amplitude of the interaction strength, δ, between companies. When this parameter increases, productivity increases and simultaneously the market evenness decreases. Conversely, when δ decreases, productivity decreases and evenness increases. I provide evidence that δ can be interpreted as reflecting the looseness of monetary policy. For instance, large (small) δ would correspond to low (high) interest rates