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Market Microstructure

  • Enseignant(s):   R.Mihet  
  • Titre en français: Microstructure des marchés
  • Cours donné en: anglais
  • Crédits ECTS: 3 crédits
  • Horaire: Semestre d'automne 2020-2021, 2.0h. de cours + 1.0h. d'exercices (moyenne hebdomadaire)
  •  séances
  • site web du cours site web du cours
  • Formations concernées:
    Maîtrise universitaire ès Sciences en finance, Orientation gestion des actifs et des risques

    Maîtrise universitaire ès Sciences en finance : Entrepreneuriat financier et science des données

    Maîtrise universitaire ès Sciences en finance, Orientation finance d'entreprise



Course objective: The way securities trade markedly differs from the idealized description of frictionless markets offered by standard finance textbooks. In real-world exchanges, frictions are commonplace; they affect trading behavior, quotes, prices, and give rise to trading costs. Market microstructure precisely aims at understanding why frictions emerge and what are their consequences for market quality, most importantly price efficiency and liquidity. These are important issues as the way markets operate is a key concern for investors, investment services professionals, issuers and policy makers.

In this course, you will learn how markets work (i.e., trading mechanisms and current market structures), what are transaction costs and why they arise on markets, how they affect prices and how they impact decision making. You will also learn the role and the origins of news and noise in financial markes. The class offers a tour of many of the frontier areas of research in market microstucture: macro-game theory, macro-finance, forecasting and empirical macroeconomics. We’ll explore some of the latest research questions and theories designed to address those questions. We’ll use information frictions and information choice as a way to reconcile standard theory with puzzling facts. At the same time as we explore theory, we will be building up the tools of Bayesian updating and Bayesian forecasting, powerful tools to address many questions that arise in the business world as well.

Teaching fellow: Zhimin Chen

Office hours: TBA

Class attendance and professionalism: You should come to class prepared to discuss assigned topics. Your thoughtful participation makes the course more interesting and productive for everyone, including your instructor.

You can contribute to the course by:Listening attentively and answering discussion questions.Arriving to class on time and turning off laptops, tablets, and mobile phones during lecture unless the class requires the use of a computer.Demonstrating interest in your peers' comments and questions.Advancing the discussion by contributing insightful comments and questions.


Main topics:

  1. Trading mechanisms
  2. Transaction costs
  3. Public and private information
  4. Noisy rational expectations models
  5. Market microstructure and asset pricing


Primary Textbook:

  1. Joel Hasbrouck, "Empirical Market Microstructure", Oxford University Press, 2007.

Other Useful References:

  1. Laura Veldkamp, "Information Choice in Macroeconomics and Finance", Princeton University Press
  2. Thierry Foucault, Marco Pagano, Ailsa Roell, "Liquidity: Theory, Evidence, and Policy", Oxford University Press, 2013.
  3. William F. Sharpe, “Investors and Markets”, Princeton University Press, 2007.
  4. Yakov Amihud, Haim Mendelson, Lasse Heje Pedersen, “Market Liquidity”, Cambridge University Press, 2013.


  1. Mathematics for Economics and Finance
  2. Introduction to Finance


1ère tentative

Ecrit 2h00 heures

Grading: Your grade will be determined by the following:

  • Homework assignments 30%
  • Tutorials (in group) 30%
  • Final 40%

How to do well in this course: Practice problems. As many as you can! Work with your friends on the difficult problems. Learn from each other. Seek help from me or from the TA. We are here to help you.
How to do well in this course: Practice problems. As many as you can! Work with your friends on the difficult problems. Learn from each other. Seek help from me or from the TA. We are here to help you.

Homework Assignments: There will be approximately 9 homework assignments. Homework assignments will consist of problems and short answer questions based on the material presented in class. The objective of these assignments is to give you the opportunity to practice the concepts. Students should hand in homework assignments to a box in the front of the lecture hall on assignment due dates or email the solutions to the Teaching Assistant.

We will not accept late assignments, but we will count only the “N-2” assignment grades when calculating the homework portion of the final grade.

Tutorials: There will be some tutorial sessions during the class where you will have the opportunity to practice different problems in groups and with the help of your TA. At the end of each tutorial, you will hand in your work to be graded. The dates are tentatively listed in the schedule below. There are no make-ups for the tutorials. You can drop the lowest tutorial grade.

Final Exam: There will be a final group project due in the last week of class. The final exam is open-book, no restrictions, cumulative and you will have a week to work on it with your group.

Take home exam


Ecrit 7 jours heures

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