New research in finance shows that market movements follow a power-law distribution. What a surprise. This is something that every trader worth his salt knows intuitively.

This is a big deal because finance has been unable to explain catastrophic moves in markets. According to orthodox finance, such moves have occurred with far greater frequency and greater intensity than the best models predict. Until now.

Nassim Taleb, for example, has written very nicely about catastrophes in markets, and how current finance theory doesn't deal with them. It's only the ultra-academic finance establishment that's now cottoning on to the fact that massive moves do happen in markets - they're just exponentially rare.

The far more interesting question to ask is why power-law distributions are so prevalent in agent-based systems. They're turning out to be to the 21st century what the normal distribution was to the 20th century.

You can grab the paper itself here.