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.

SAMPLE COURSE OUTLINE

Part I: Empirical analysis

• Introduction
• TAQ, NBBO, and Liquidity Measures
• Trade Typing
• Liquidity Measurement Problems
• Developing Trends
• The PIN Model
• Information Shares
• Finnish Data
• Matched Samples and LOB Construction
• Commonality
• The Flash Crash
• The Empirical Analysis of Liquidity
• Corporate Bonds
• Options
• Liquidity-adjusted CAPM
• Behavioral Empirics
• Low-Frequency Liquidity Proxies
• The Experimental Approach
• Analysis of Order Data

Part II: Theory

• The Single-Period Kyle Model
• The Multi-Period Kyle Model
• Kyle Extension and Applications
• Inventory
• Limit Order Models
• Optimal Trading Strategy
• Market Liquidity and Funding Liquidity
• Behavioral Theory