Empirical Market Microstructure
Spring 2004
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INSTRUCTOR: |
Ingrid M. Werner |
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OFFICE: |
818 Fisher Hall |
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CLASS TIMES: |
3/19, 3/22, 3/24,
3/26, 4/2, 4/9, |
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CLASSROOM: |
P2011 except on Wednesday, 3/24 – D1220 |
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OFFICE HOURS: |
Immediately Following Class |
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E-MAIL: |
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PHONE: |
(614) 292-6460 |
Class Updates
Last Updated:
Course Outline
and Schedule (.pdf)
Brief
Course Description (below)
Schedule
(.htm)
Empirical Problem Sets and Data
Slides for Introductory Session
Slides on Market Structure
1. Outline
This course is concerned with the workings of financial markets on the micro level. We study both the core theoretical models of trading processes, and the rich empirical literature that tests the proposed theories. While market microstructure theory is well developed (See, e. g., O’Hara (1995)), no single model is capable of capturing all the complex attributes of real-life securities markets. Therefore, it should not come as a surprise that a tremendous amount of work in the literature has been devoted to developing “stylized facts” from real markets. In fact, many of the theoretical models were developed to explain patterns in microstructure data that were observed by empiricists (e.g., Admati and Pfleiderer (1988)).
2. Course Materials
We will use materials from a course-outline that Prof. Maureen O’Hara, Cornell University, and I prepared for the Nasdaq Educational Foundation (NEF). These materials can be found on this web-page.
We will also rely on an excellent set of teaching notes that Prof. Joel Hasbrouck, New York University, has made available to us free of charge. You may download the notes in .pdf format (about 200 pages) from Prof. Hasbrouck’s web-site. The notes are also available in .html format (which among other things includes Mathematica code).
Hasbrouck, Joel, 2004, Empirical Market Microstructure, Economic and Statistical Perspectives on the Dynamics of Trade in Securities Markets, January 8.
Source: http://www.stern.nyu.edu/~jhasbrou
Finally, you should acquire the standard textbook for PhD
level courses in the area:
O’Hara, Maureen, 1995, Market
Microstructure Theory, Blackwell Publishers.
For those of you that are relatively unfamiliar with the
institutional detail of securities markets and the securities industry, a good
source for information is:
Harris, Larry, 2003, Trading and
Exchanges, Market Microstructure for
Practitioners, Oxford University Press.
3.
Assignments
Microstructure data is both rewarding and challenging to work with. The data sets are large in terms of the
number of observations, but often small in terms of calendar time. They are “fresh” in that the
first transactions data sets date from the early 1990s. At the same time, these datasets quickly
become “stale” since market structures have an annoying tendency to
change rapidly.
The only way to appreciate the challenges an empirical researcher in market microstructure faces is to actually do hands-on work with market microstructure data. Hence, we will use a number of empirical exercises based on data from different markets around the world during the course. These empirical exercises will require some SAS programming skills, and lots of patience in dealing with large data sets. Most of the problem sets and data that you need are available from my web-page (see above). There are also a few case studies included in Prof. Hasbrouck’s notes that we will use, and the data and code for these problems are available on his web-page (see above).
Laura Tuttle, one of my PhD students at OSU who has
extensive experience working with microstructure data has kindly agreed to help
us with the empirical exercises.
Teaching Assistant: Ms. Laura Tuttle
E-mail: tuttle.58@osu.edu
4. Schedule
The course will be given in compressed format, and we will meet on the following dates and times:
Friday 3/19, 3:00-6:00pm, P2011
Monday 3/22, 3:00-6:00pm, P2011
Wednesday 3/24, 3:00-6:00pm, D1220
Friday 3/26, 3:00-6:00pm, P2011
Friday 4/2, 3:00-6:00pm, P2011
Friday 4/9, 3:00-6:00pm, P2011
5. Examination
The empirical assignments account for 75 percent of the course grade, and there will be a final take-home exam for the remaining 25 percent.