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Indiana University Bloomington

Department of Finance

  1. 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