Scale invariance and universality of economic fluctuations

In recent years, physicists have begun to apply concepts and methods of sta tistical physics to study economic problems, anti the neologism "econophysi cs" is increasingly used to refer to this work. Much recent work is focused on understanding the statistical properties of time series. One reason for this interest-is that economic systems are examples of complex interacting systems for which a huge amount of data exist, and it is possible that eco nomic time series viewed from a different perspective might yield new resul ts. This manuscript is a brief summary of a talk that was designed to addre ss the question of whether two of the pillars of the field of phase transit ions and critical phenomena - scale invariance and universality - call be u seful in guiding research on economics. We shall see that while scale :inva riance has been tested for many years, universality is relatively less freq uently discussed. This article reviews the results of two recent studies - (i) The probability, distribution of stock price fluctuations: stock price fluctuations occur in all magnitudes, in analogy to earthquakes - from tiny fluctuations to drastic events, such as market crashes. The distribution o f price fluctuations decays with a power-law tail well outside the Levy sta ble regime and describes fluctuations that differ in size by as much as eig ht orders of magnitude. (ii) Quantifying business firm fluctuations: We ana lyze the Computstat database comprising all publicly traded United States m anufacturing companies within the years 1974-1993. We find that the distrib utions of growth rates is different for different bins of firm size, with a width that varies inversely with a power of firm size. Similar variation i s found for other complex organizations, including country size, university research budget size, and size of species of bird populations. (C) 2000 El sevier Science B.V. All rights reserved.