Seminar in Market Microstructure

Trading, Exchanges, and Markets
Kee H. Chung
Louis M. Jacobs Professor and Department Chair
SUNY at Buffalo
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:
CBS MarketWatch
FT Investor (Financial Times)
MSN Money (CNBC)
Yahoo! Finance
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
T&E Chapter 7. Brokers
Recommendation of Security Analysts
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.