Courses

F635

Market Microstructure

  • 15-weeks
  • 3 credits
  • Prerequisite: F600

Theory and empirical analysis of trading and market making on security exchanges. Examines both trader strategy and market maker strategy. Provides basic theoretical and empirical building blocks. Analyzes a wide variety of applications including trading mechanisms, security design, and market design. Compares security exchange liquidity, informativeness, transparency, and volatility.

Outline of Topics Covered:

  1. THEORY
    1. Introduction
    2. Single-Period Kyle Model
    3. Multi-Period Kyle Model
    4. Kyle Model Extensions
    5. Kyle Model Applications
    6. Quote-driven Markets
    7. Inventory
    8. Single-Period Limit Order Models
    9. Complex Dynamic Models
    10. The Behavioral Paradigm
    11. Exchange Competition and Innovation
    12. Developing Trends
    13. Corporate Finance and Market Microstructure
    14. Taking a Theoretical Model to the Data
  2. EMPIRICAL ANALYSIS
    1. Microstructure Data
    2. Spread Decomposition
    3. Trading Costs
    4. Econometric Models
    5. Competition / Integration in Options
    6. Order Execution Performance Across Exchanges
    7. Inference Methods
    8. NASDAQ Implicit Collusion Trial
    9. Inventory Management
    10. Research Paper Presentations
    11. Paris, Tokyo, and London
    12. The Experimental Approach
    13. Transaction Data Around Events
    14. Comparing Different Trading Mechanisms
    15. Regulatory Impacts