Microstructure Theory

Market microstructure is the study, both theoretically and empirically of tick by tick price determination in a security market. Such a study includes the nature of quotes, orders and how transactions evolve. The focus of this course is the set of a relatively few number of standard theoretical models in the area. The course starts with a discussion of market plumbing," i.e. the way markets work and their rules. This will form the basis for analyzing the realism of various models. We then work through the models and their variants in order to understand their key contributions and empirical implications. We end with a discussion of regulatory issues and how the models inform, or do not inform, the regulatory discussion."