We survey a theory (first sketched in Nature in 2003, then fleshed out in the Quarterly Journal of Economics in 2006) of the economic underpinnings of the fat-tailed distributions of a number of financial variables, such as returns and trading volume. Our theory posits that they have a common...

Recent empirical research has uncovered regularities in financial fluctuations. Those are: (i) the cubic law of returns: returns follow a power law distribution with exponent 3; (ii) the half cubic law of volumes: volumes follow a power law distribution with exponent 32; (iii) Approximate cubic law...

This manuscript is a brief summary of a talk designed to address the question of whether two of the pillars of the field of phase transitions and critical phenomena—scale invariance and universality—can be useful in guiding research on interpreting empirical data on economic fluctuations....

One challenge of economics is that the systems treated by these sciences have no perfect metronome in time and no perfect spatial architecture—crystalline or otherwise. Nonetheless, as if by magic, out of nothing but randomness one finds remarkably fine-tuned processes in time. We present an...

We quantitatively investigate the ideas behind the often-expressed adage `it takes volume to move stock prices', and study the statistical properties of the number of shares traded $Q_{\Delta t}$ for a given stock in a fixed time interval $\Delta t$. We analyze transaction data for the largest...

We respond to the issues discussed by Farmer and Lillo (FL) related to our proposed approach to understanding the origin of power-law distributions in stock price fluctuations. First, we extend our previous analysis to 1000 US stocks and perform a new estimation of market impact that accounts...

Stock price changes occur through transactions, just as diffusion in physical systems occurs through molecular collisions. We systematically explore this analogy and quantify the relation between trading activity - measured by the number of transactions $N_{\Delta t}$ - and the price change...

We present a theory of excess stock market volatility, in which market movements are due to trades by very large institutional investors in relatively illiquid markets. Such trades generate significant spikes in returns and volume, even in the absence of important news about fundamentals. We...

We survey a theory of the economic underpinnings of the fat-tailed distributions of a number of financial variables, such as returns and trading volumes. Our theory posits that they have a common origin in the strategic trading behavior of very large financial institutions in a relatively...