BUS-F635 Market Microstructure

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