Scientists have not surveyed the fossil record enough to give a firm answer to that question but S.J. Gould way back in 1977 (in the journal Paleobiology) suggested it was the latter: evolutionary changes happen in discreet periods of massive change followed by long periods of relative calm. And M.D. Raup some years later (1986) in the journal Science presented fossil evidence to back up Gould's theoretical claims.
Raup called biological evolution "episodic" at all scales, meaning that a species can thrive for long periods of time and in a relatively small amount of time completely disappear, from either endogenous of exogenous events. Incredibly, Raup found that the extinction of one species occurs at the same time as that of other species, such that species having no direct contact with each other's ecosystems somehow "share" some sort of macroscopic evolution. They termed it an "avalanche" of extinctions. Species can co-exist for hundreds of millions of years and then all of a sudden, an extinction avalanche can take place and massively change the evolutionary dynamic. Think dinosaurs and mammals; only after the dinosaurs suddenly became extinct did mammals evolve massively.
Why does this matter? Think of the parallels to negotiated financial markets. Most of the time barely anything happens: stocks mean-revert, and can be said to follow some discreet, linear standard deviation of change. Then a sudden change in some variable - oil, interest rates, stock prices, commodities, currencies, etc. - tips the previous balance in a significant way and leads to substantial changes among other asset classes. An avalanche is initiated in one market, and the effects are felt instantly in others. This continues until some sort of new equilibrium is reached among the asset classes, just as a new equilibrium is reached within species after an 'episodic' extinction (again, think mammals and dinosaurs).
The above speaks to the idea we have presented continuously: that negotiated financial markets are complex systems. And like ecosystems, follow certain rules of behavior: self-organization, scale invariance, critical states. There are tools that paleobiologists and physicists have and are working to develop to help measure and predict some of these behaviors. We think financial markets can benefit from the same research. Our own work, though only scratching the tip of this very large iceberg, suggests the same.
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