Trading and Market Microstructure

The course discusses the functioning of financial markets and trading and price determination in these markets. Topics covered include order submission and trading strategies, market structure and quality, settlement, transaction costs and liquidity, bubbles and crashes, price formation and technical analysis. The lectures will draw on academic and practitioner research as well as information from markets. The course is technical at some points but the focus throughout is on intuition and practical applications.

The set of topics typically covered follows.   

TOPIC 1. ORDERS AND SETTLEMENT
Orders and their characteristics
Types of orders
Advantages and disadvantages of each order type
Trade settlement, including settlement protocols and procedures, risks, and the role of depositories and custodians

TOPIC 2. MARKETS
Market structure and its importance
Types of market structures and their characteristics
Market evolution and competition

TOPIC 3. TRANSACTION COSTS
Digression: Trader types and some theory
Importance of transaction costs
Measuring transaction costs
Determinants of transaction costs

TOPIC 4. LIQUIDITY
Liquidity and its importance
Liquidity providers
Measuring liquidity
Episodes of illiquidity
Liquidity comovement and liquidity risk

TOPIC 5. NON-EQUITY MARKETS
FX market structure and trading procedures
FX dealer versus retail trades 
Bond market structure and trading procedures 
Government bond market microstructure
Corporate bond market microstructure

TOPIC 6. INSTITUTIONAL TRADES
Institutional trading features
Hedge fund trading and the tech bubble
High frequency trading

TOPIC 7. MARKET QUALITY AND PRICE FORMATION
Market efficiency, the random walk and autocorrelations in returns
Cross-autocorrelations in returns
Volatility
Market links, spillovers and arbitrage
Market manipulation

TOPIC 8. BEHAVIORAL ASPECTS OF TRADING
The plausibility of behavioral finance: A trading perspective
Behavioral finance and trading

TOPIC 9. CRASHES, BUBBLES AND SPECULATION
Bubbles
Crashes
Market breakdowns
Regulatory tools

TOPIC 10. TECHNICAL ANALYSIS AND PREDICTION
What is technical analysis?
Simple methods
Macro prediction

Readings/Textbooks:
There is no required textbook, and the handouts provided are intended to be self-standing.  An optional reading list, with relevant papers and books for interested students to reference, is provided.   

By the end of the course, the students should have an understanding of the current financial market landscape, the role of traders, the trading and price determination processes, and the opportunities and dangers confronting traders.

In presenza

The lectures are discussion-style and interactive. In each topic, concepts are explained first, and followed by an example-oriented discussion of their practical applications. Learning is facilitated though a focus on these applications and student participation. A set of power point slides handed out in advance forms the basis for the lectures.
Compliant with COVID-19 guidelines

Grades are based on a written exam held during the normal exam period.  Exam questions will come from material covered during the lectures.