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Market Microstructure

  • Teacher(s):   F.Riva  
  • Course given in: English
  • ECTS Credits: 3 credits
  • Schedule: Autumn Semester 2019-2020, 2.0h. course + 1.0h exercices (weekly average)
  •  sessions
  • site web du cours course website
  • Related programmes:
    Master of Science (MSc) in Finance, Orientation Asset and Risk Management

    Master of Science (MSc) in Finance : Financial Entrepreneurship and Data Science

    Master of Science (MSc) in Finance, Orientation Corporate Finance

 

Objectives

The way securities trade markedly differs from the idealized description of frictionless markets offered by standard finance textbooks. In real-world exchanges, frictions are commonplace; they affect trading behavior, quotes, prices, and give rise to trading costs. Market microstructure precisely aims at understanding why frictions emerge and what are their consequences for market quality, most importantly price effciency and liquidity.

In this course, students will learn how markets work (basic trading mechanisms and current market structures), what are (implicit) transaction costs and why they arise on markets, how they affect prices and how they impact decision making. They will also learn how to estimate these costs and how to manage them. The course will combine institutional features, theoretical models and estimation techniques.

Contents

The course is structured around five topics:

  1. Trading mechanisms
  2. Transaction cost determinants
  3. Transaction cost estimation techniques
  4. Transaction cost management
  5. Modern markets
  6. Market microstructure and asset pricing

References

The primary textbook reference:

Thierry Foucault, Marco Pagano, Ailsa Roell, "Market Liquidity: Theory, Evidence, and Policy", Oxford University Press, 2013. (Foucault, Pagano, Roell 2013)

Additional textbook references:

Joel Hasbrouck, "Empirical Market Microstructure", Oxford University Press, 2007. (Hasbrouck 2007)

Larry Harris, "Trading and Exchanges: Market Microstructure for Practitioners", Oxford University Press, 2003. (Harris 2003)

Pre-requisites

Mathematics for Economics and Finance

Introduction to Finance

Evaluation

First attempt

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