Market Microstructure Theory

6th or 8th Semester

At A Glance

Course Code

ΧΡΘΜΑ01

Course Type

Special topic (elective course)

Teaching Language

Greek, textbooks in English are suggested. Examination is in Greek.

Is the course offered to Erasmus Students?

YES (in English)

Teaching Delivery

In classroom

Use of Information and Communications Technology

Independent Teaching Activities

Type

Lectures

Weekly Teaching Hours

ECTS Credits

7,5

Course Outlines

🇬🇷 Greek

🇬🇧 English

External Links

Student Performance Evaluation

Writing exams (90%) that refers to the theoretical questions and exercises on the material developed in the class.

Homeworks (10%) that ask students to solve some related to the course exercises.

Learning Outcomes

The main goal of the course is to introduce the students to the basic concepts and theories that have been developed in recent years for markets’ microstructure. More specifically, the subjects the course will study:

The distinction of markets into primary and secondary and into markets of organized or over-the-counter mechanisms
The theory of formation of prices and trading volumes, the concept of equilibrium and efficiency in a securities market
The price spread and the concept of liquidity of a market and the “central” role of the central market maker
The strategic behavior of investors and its effect on prices
The categories of the orders and their properties
The information asymmetry and the way it is modelled
How the liquidity of a market is defined, measured and affected

General Competences

Autonomous work
Team work
Work in inter-scientific environment

Syllabus

1) The distinction of markets

In primary and secondary markets.
In organized markets (organized exchange).
In money and capital markets (money market and capital market).
The structure of markets and trading protocols.

2) Setting prices and trading volumes

The concept of equilibrium in a market (market equilibrium).
The concept of rational expectations.
The concept of efficiency in a market (efficiency).
Setting prices through an auction.

3) The price spread and the factors that affect it

The concept of market liquidity.
The “central” role of the central negotiator (market maker).
Inventory cost and risk
The importance of asymmetric information.

4) Strategic behavior of participants

The distinction of investors.
The competition between central negotiators.
The application of game theory.
Deviation from market efficiency due to strategic behavior.

5) The categories of orders

Buy and sell orders
Order composition and investment objectives.

6) Information asymmetry

The importance and source.
How it relates to price margin.
Basic mathematical models.
Investment strategies derived from asymmetry.

7) Liquidity

Definitions and meanings
Liquidity measures
Influencing factors

Bibliography

de Jong, F. and Rindi, B. (2009). The Microstructure of Financial Markets, Cambridge University Press.
Foucault, T., Pagano, M., & Roell, A. (2013). Market liquidity: Theory, evidence, and policy. Oxford University Press.
Harris, L. (2003). Trading and exchanges: Market microstructure for practitioners. Oxford University Press.
Hasbrouck, J. (2007). Empirical Market Microstructure: The Institutions, Economics, and Econometrics of Securities Trading. Oxford University Press.

Undergraduate Courses

1st Semester