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Describe
· the main ideas in the functioning of exchanges and markets.
· the fundamentals of liquidity services.
Contrast concepts like
· orders, trades and quotes.
· brokers, dealers, market makers and specialists.
· dealer markets, auction markets, order-driven markets, floor markets, continuous markets, call markets, hybrid markets.
Identify
· flaws in market and exchange design.
· factors that affect the quality of markets.
Analyze
· trading and order submission strategies.
Paraphrase
· academic papers within the field.
Apply
· econometric methods to high frequency trading data
Students will learn how securities markets function. In particular how trading is organized and how market structures are different for different securities. That the same type of security can trade in very different market structures, but that trading models for equities seem to converge across the globe. Finally, we will take a look
at regulation and why regulation matters. Overall the main focus will be on equity markets, but many of the concepts are relevant also for FX, derivatives and fixed income instruments. We will read and discuss several articles. The majority of the articles will have an empirical content or be case studies.
COURSE SUBJECT AREAS:
The course is organized in 4 modules (A-D):
Module A.: Securities, markets and the people who trade in them.
This part of the course takes 16 hours. The teaching format is lectures. Lectures are supposed to give the student an overview and an introduction to market microstructure. The lectures will not follow book chapters or articles. Instead, the students will be given handouts of the slides. The slides will have literature references.
Some (but not all) of the references will be in the exam requirements.
Planned topics are:
i) securitization and types of securities.
ii) liquidity services.
iii) markets and exchanges.
iv) motives for trading and types of traders.
v) the history of exchanges.
vi) auctions and order-driven markets.
vii) precedence rules in order-driven markets.
viii) dealer and OTC markets.
ix) floor markets and electronic trading.
x) exchange design.
xi) measurements of liquidity.
Module B.: Selected topics in market microstructure.
This part of the course takes 8 hours. The teaching format is lectures and class discussions of articles and book chapters on selected topics.
Planned topics are:
i) Dealers, dealer markets and market making.
ii) Heterogeneously informed traders.
iii) The theory of bid-ask spreads.
iv) Liquidity and transactions cost measurements.
All literature in this module will be part of the exam requirements.
Module C.: Empirical market microstructure.
This part of the course takes 12 hours. The teaching format is lectures and class discussions.
Planned topics are:
i) Properties of high frequency trading data.
ii) Empirical modeling of the bid-ask spread and its components.
iii) Multivariate linear models of high frequency trading data.
iv) Case studies in empirical market microstructure.
All literature in this module will be part of the exam requirements.
Module D.: Project in empirical market microstructure.
Students must write a paper, which will typically have an empirical content. A sample of pre-approved topics will be posted in Aula. Students can also make a proposal of their own. All students must have their project title approved before November 1, 2011.
3376 Financial markets and corporate strategy, 3620 Econometrics, 4616 Time Series Econometrics.
Carsten Tanggaard
Lectures and exercises
English
1. Harris, Larry: Trading and Exchanges - Market Microstructure for Practitioners, Oxford University
Press, 2003. Selected chapters will be announced before the course begins.
2. Hasbrouck, Joel: Empirical Market Microstructure, Oxford University Press, 2007. Selected chapters
will be announced before the course begins.
3. Cases and articles (approx. 12). Titles will be announced before the course begins.
4. Slides and lecture notes
FORM OF ASSESSMENT:
1. A written paper on a topic approved by the lecturer. The paper can be written by 1 or 2 students. Page requirement for 1 student: 20 pages, 2 students: 30 pages. Paper must be submitted on or before December 20, 2011. There will be no oral examination in the paper. Weight: 50%.
2. Oral exam of 20 min. duration with 20 minutes preparation time. Exam questions will be posted 2 weeks before the oral exam. Weight: 50%.
EXAMINATION AIDS ALLOWED:
1. Project: All aids allowed.
2. Oral exam: Own notes (maximum 30 pages). Nothing else
