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It is known since Bachelier 1900 that price changes are nearly uncorrelated, leading to a random-walk like behaviour of prices.

However, compared to the simplest Brownian motion, price statistics reveal a large number of anomalies, such as fat tails and long memory in the volatility.

The detailed study of trade by trade and order book data allows one to provide evidence for a subtle compensation mechanism that underlies the `random' nature of price changes. This compensation drives the market close to a critical point, which may explain the sensitivity of financial markets to small perturbations, and their propensity to enter bubbles and crashes. We argue that the resulting unpredictability of price changes is quite far from the neo-classical view that markets are informationally efficient.

BIO

JEAN-PHILIPPE BOUCHAUD was born in France in 1962. After studying at the French Lycée of London, he graduated from the Ecole Normale Supérieure in Paris, where he also obtained his PhD in physics. He was then appointed by the CNRS until 1992, where he worked on diffusion in random media. After a year spent in the Cavendish Laboratory (Cambridge), Dr Bouchaud joined the Service de Physique de l'etat Condensé (CEA-Saclay), where he worked on the dynamics of glassy systems and on granular media. He became interested in theoretical finance in 1991. He founded the company Science & Finance in 1994 with J.-P. Aguilar, that merged with Capital Fund Management (CFM) in 2000.

His work in finance includes extreme risk control and alternative option pricing models. He teaches statistical mechanics and finance in various Grandes Écoles, and supervises with Marc Potters the research team at CFM. He was awarded the IBM young scientist prize in 1990 and the C.N.R.S. Silver Medal in 1996.