Core Papers in Research Front on
Financial Market Fluctuations from Thomson
Reuters’s Essential Science
IndicatorsSMDatabase
1 - Citations: 131
Title: A theory of power law distributions in financial
market fluctuations
Authors: Gabaix, X., Gopikrishnan P., Plerou, V., and
Stanley, H.E.
Source: Nature, 423(6937), 267-70, May 15,
2003
Address: Massachusetts Institute of Technology, Department
of Economics, Cambridge, MA USA; Boston University,
Department of Physics, Boston, MA USA
2 - Citations: 36
Title: Fluctuations and response in financial markets: The
subtle nature of "random" price changes
Authors: Bouchaud, J.P., Gefen Y., Potters, M., and Wyart,
M.
Source: Quantitative Finance, 4(2), 176-190, April
2004
Addresses: CEA, Gif Sur Yvette, France; Capital Fund
Management, Science and Finance, Levallois Perret, France;
Weizman Institute of Science, Department of Condensed
Matter Physics, Rehovot, Israel
3 - Citations: 26
Title: What really causes large price changes?
Authors: Farmer, J.D., Gillemot, L., Lillo, F., and Sen,
A.
Source: Quantitative Finance, 4(4), 383-97, August
2004
Addresses: Santa Fe Institute, Santa Fe, NM, USA; Budapest
University of Technology and Economics, Budapest, Hungary;
University of Palermo, National Institute of Condensed
Matter Physics, Palermo, Italy; University of Chicago,
Department of Mathematics, Chicago, IL, USA
4 - Citations: 22
Title: Institutional investors and stock market
volatility
Authors: Gabaix, X., Gopikrishnan P., Plerou, V., and
Stanley, H.E.
Source: Quarterly Journal of Economics, 121 (2):
461-504, May 2006
Addresses: Massachusetts Institute of Technology,
Department of Economics, Cambridge, MA, USA; National
Bureau of Economic Research, Cambridge, MA, USA; Boston
University, Department of Physics, Boston, MA, USA
5 - Citations: 3
Title: Tests of scaling and universality of the
distributions of trade size and share volume: Evidence from
three distinct markets
Authors: Plerou, V., and Stanley, H.E.
Source: Physical Review E, 76(4), article number
-046109, Part 2, October 2007
Address: Boston University, Department of Physics, Boston,
MA, USA
Measurement of the relationship between documents can be performed in many
ways. One method of assessing similarity uses shared references, a concept
known as bibliographic coupling. Another, introduced independently in 1973
by Henry G. Small and Irinia V. Marshakova-Shaikevich, is called
co-citation. Using this technique, two documents are said to be related if
they are cited together. The greater the degree of co-citation, the closer
the intellectual content of the two works, so the theory goes. Thomson
Reuters has developed the co-citation methodology over the years and now
employs it in its Essential Science Indicators database to
construct so-called research fronts. A research front consists of a group
of highly cited papers that are co-cited.
Lately, Clarivate has been monitoring the new field of econophysics,
which uses tools of statistical physics to analyze socio-economic problems.
Current events suggested a search for research fronts on volatility in the
financial markets. The five papers listed above are the core papers (those
highly co-cited) by 218 papers, the whole forming a research front entitled
"Financial Market Fluctuations." The average age of the core papers is
2005, suggesting a new, rapidly developing area with a young foundation
literature.
In October 2006, Clarivate interviewed J.
Doyne Farmer and Fabrizio Lillo, two of the authors
of paper 3 above. They summarized their findings: "The paper describes
the discovery that large price changes due to individual transactions
are strongly affected by an imbalance between liquidity supply and
liquidity demand. It’s a common belief that large price changes
are originated by large transaction volume. We empirically found that
even small volumes can give rise to large price changes. By
investigating the origin of this behavior, we found that this happens
when there is a lack of liquidity in the market. In these conditions the
market is in a somewhat unstable state and even a small
perturbation—i.e., a small transaction—can have a
significant effect on the price." When asked about the social
implications of their work, Farmer and Lillo replied, "Clearly financial
markets are an important component of our societies, thus any result on
this topic is potentially useful in socio-political terms. In
particular, our research helps to clarify the origin of large price
fluctuations, such as occurs during financial crashes. It is possible
thus that the results of our research could help market regulators in
improving market rules in order to control market volatility and to
avoid extreme events."
Now, two years later, their comments on the importance of liquidity and
market regulations have a somewhat eerie quality.