The legal theory of finance: Implications for methodology and empirical research

- The idea that law constitutes finance is convincing but needs further methodological refinement.
- Existing models do not take sufficient account of disequilibrium and non-stationarity in legal and financial systems.
- Leximetric coding techniques can be used to generate better data on legal change over time.
- Time-series econometric methods provide an empirical basis for understanding long-run dynamics in law and finance.

This commentary on the LTF project highlights the importance of the idea that law 'constructs' finance and considers some of its methodological implications. The idea that law shapes finance implies that the legal system can be clearly differentiated in theoretical terms from the economy, and that the independent causal influence of the law on financial outcomes can be measured empirically. It will be argued that this can best be achieved by placing empirical research on law and finance in an evolutionary-theoretical perspective, which draws on related developments in game theory and systems theory, in the statistical study of law ('leximetrics'), and in time-series econometrics.