We address the question of how stock prices respond to changes in demand. We quantify the relations between price change $G$ over a time interval $\Delta t$ and two different measures of demand fluctuations: (a) $\Phi$, defined as the difference between the number of buyer-initiated and...

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...

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...

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 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...

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...

We use methods of random matrix theory to analyze the cross-correlation matrix C of price changes of the largest 1000 US stocks for the 2-year period 1994-95. We find that the statistics of most of the eigenvalues in the spectrum of C agree with the predictions of random matrix theory, but there...

We study the distribution of fluctuations over a time scale $\Delta t$ (i.e., the returns) of the S&P 500 index by analyzing three distinct databases. Database (i) contains approximately 1 million records sampled at 1 min intervals for the 13-year period 1984-1996, database (ii) contains 8686...