Seminar in Market Microstructure



Trading, Exchanges, and Markets

Kee H. Chung

Louis M. Jacobs Professor and Department Chair

SUNY at Buffalo

(e-mail) keechung@buffalo.edu



Course description:

This course consists of two parts. In Part 1, you’ll learn basic protocols of trading and institutional details of securities markets such as order types, market structures, trader types, and dealers. In Part 2, you’ll be exposed to select analytical models of market microstructure. Here, you’ll be introduced to conceptual framework for price formation, market making, and the measurement and management of trading costs.

Textbook: Larry Harris, Trading & Exchanges: Market Microstructure for Practitioners.

Oxford University Press, 2003.

Grading: Exam (80%) and in-class discussion participation (20%)

Useful websites:

NYSE’s MarkeTrac:

Social Science Research Network:

Major financial news sites:

Bloomberg

CBS MarketWatch

CNN/Money

FT Investor (Financial Times)

MSN Money (CNBC)

Yahoo! Finance

Topics

Introduction

Part 1:

T&E Chapter 4. Orders and Order Properties

T&E Chapter 5. Market Structures

T&E Chapter 6. Order-driven Markets

The role of liquidity providers on the KRX

(2005-LP).pdf

T&E Chapter 7. Brokers

Recommendation of Security Analysts

(MGF633)/Recommendations%20of%20financial%20analysts.ppt

K. Chung. Marketing of Stocks by Brokerage Firms: The Role of Financial Analysts. Financial Management (Summer 2000), pp. 35-54.

T&E Chapter 3. The Trading Industry

T&E Chapter 8. Why People Trade

T&E Chapter 11. Order Anticipators

T&E Chapter 12. Bluffers and Market Manipulation

T&E Chapter 10. Informed Traders and Market Efficiency

T&E Chapter 16. Value Traders

T&E Chapter 9. Good Markets

Part 2:

T&E Chapter 29. Insider Trading

Strategic trade models



T&E Chapter 13 & 14 Dealers and Bid/ask Spreads

Adverse selection model I



Adverse selection model II



Excel Application



T&E Chapter 18. Buy-side Traders

T&E Chapter 20. Volatility

T&E Chapter 21. Liquidity and Transaction Cost Measurement

Spread component model



Roll, R., 1984. A simple implicit measure of the effective bid-ask spread in an efficient market. Journal of Finance 39, 1127-1139.



Stoll, H., 1989. Inferring the components of the bid-ask spread: theory and empirical tests. Journal of Finance 44, 115-134.



T&E Chapter 22. Performance evaluation and prediction

S. Stickel. "The Anatomy of the Performance of Buy and Sell Recommendations.” FAJ (September-October 1995), pp. 25-39.

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