An analysis on stock market evolution based on birth-death process

Friedman considered that financial market should eliminate the irrational traders. For the sake of analyzing such a point, established a model adopt by the birth-death process to research the stock market which has rational traders and irrational traders. We studied the velocity of rational traders and irrational traders entering and quitting the stock market. Based on this we can analysis the dynamic rule of the increase or decrease of the numbers of rational traders and irrational traders in stock market. The conclusion is that the irrational traders may not be eliminated from the stock market. Their survival or disappear depend on many factors. Such factors include the initial wealth of irrational traders, the profits and losses of irrational traders, etc.