Trading and Financial Markets

Overview
This course discusses the functioning of financial markets and trading and price determination in these markets. Topics to be covered include order submission and trading strategies, market structure and quality, transaction costs and liquidity, bubbles and crashes, price formation and technical analysis. The lectures will draw on academic and practitioner research as well as information from markets. The course is technical at some points but I will emphasize the intuition and practical applications.
Course materials
A set of power point slides to be handed out in advance will form the basis for the class discussion and exam.
Grading
Grades will be based on an exam, to be held during the normal exam period. Exam questions will be drawn from material covered in class.
Topics
TOPIC 1. ORDERS

• Orders and their characteristics
• Types of orders
• Advantages and disadvantages of each order type

TOPIC 2. MARKETS

• Market structure and its importance
• Types of market structures and their characteristics
• Market evolution and competition

TOPIC 3. TRANSACTION COSTS

• Digression: Trader types
• Importance of transaction costs
• Measuring transaction costs
• Determinants of transaction costs

TOPIC 4. LIQUIDITY

• Liquidity and its importance
• Liquidity providers
• Measuring liquidity
• Episodes of illiquidity
• Liquidity comovement and liquidity risk

TOPIC 5. NON-EQUITY MARKETS

• The FX market
• Dealer versus retail trades
• The bond market
• Government bonds
• Corporate bonds

TOPIC 6. INSTITUTIONAL TRADES

• Institutional trading patterns
• Features of institutional trading
• Hedge fund trading and the tech bubble
• High frequency trading

TOPIC 7. MARKET QUALITY AND PRICE FORMATION

• Market efficiency
• Measuring market quality: The random walk and autocorrelations in returns
• Cross-autocorrelations in returns
• Volatility
• Market links, spillovers and arbitrage
• Market manipulation

TOPIC 8. BEHAVIORAL ASPECTS OF TRADING

• What is behavioral finance?
• Why is it plausible?
• What aspects of behavioral finance are relevant to trading?

TOPIC 9. CRASHES, BUBBLES AND SPECULATION

• Bubbles
• Crashes
• Market breakdowns
• Regulatory tools

TOPIC 10. TECHNICAL ANALYSIS AND PREDICTION

• What is technical analysis?
• Simple methods
• Macro prediction