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is the study of the price formation mechanism. It also typically addresses
what we can learn from prices (i.e., the information content of a trade).
In �nance finance as we are obsessed with prices, studying how they arise from
agents' strategic behavior seems a sensible place to start. As data are readily
available, there is a voluminous empirical literature. Given that a lot of the
models are very stylized and the operation of the markets so complex, the
empirical work is aggressively reduced form. Needless to say, I won't cover
the empirical work { as this does not represent my comparative advantage.1 After the crisis, researchers in other �elds fields (asset pricing) are beginning to
understand that understanding the mechanics of trade is important. I will try
to address how some of the ideas of microstructure have been incorporated
into the other �eldsfields. Given the brevity of the course, this list is both short
and idiosyncratic.
===Classic Market Microstructure===
====General Surveys of the �FieldField====
*O'Hara, Maureen (1995), "Market Microstructure Theory", Blackwell (This is a book.) [http://books.google.com/books?id=udXjR2Dg7bwC&lpg=PR5&ots=o2Vi_-Ba-x&dq=OHara%20(1995)%20-%20Market%20Microstructure%20Theory&lr&pg=PR5#v=onepage&q&f=false (link)]
*Back, Kerry and S. Baruch (2005), "Working Orders in Limit-Order Markets and Floor Exchanges", Journal of Finance [http://www.edegan.com/pdfs/Back%20Baruch%20(2005)%20-%20Working%20Orders%20in%20Limit%20Order%20Markets%20and%20Floor%20Exchanges.pdf (pdf)]
*Rosu, I. (2005), "A Dynamic Model of the Limit Order Book", U Chicago working paper. [http://www.edegan.com/pdfs/Rosu%20(2005)%20-%20A%20Dynamic%20Model%20of%20the%20Limit%20Order%20Book.pdf (pdf)]
===Market Design and Competition between Markets===
*Biais, Bruno (1993), "Price Formation and Equilibrium liquidity in Fragmented and Centralized Markets", Journal of Finance 48, 157-185. [http://www.edegan.com/pdfs/Biais%20(1993)%20-%20Price%20Formation%20and%20Equilibrium%20liquidity%20in%20Fragmented%20and%20Centralized%20Markets.pdf (pdf)]
*Biais, B., D. Martimort and J. Rochet (2000), "Competing Mechanisms in a Common Value Environment", Econometrica 68, 799-838. [http://www.edegan.com/pdfs/Biais%20Martimort%20Rochet%20(2000)%20-%20Competing%20Mechanisms%20in%20a%20Common%20Value%20Environment.pdf (pdf)]
*Holmstrom, B. and Tirole, J. (2001), "LAPM - a liquidity based asset pricing model" [http://www.edegan.com/pdfs/Holmstrom%20Tirole%20(2001)%20-%20LAPM%20A%20Liquidity%20Based%20Asset%20Pricing%20Model.pdf (pdf)]
*Easley, David and M. O'Hara (2004) - "Information and the cost of capital", Journal of Finance Vol.59, No 4. p 1553-1583. [http://www.edegan.com/pdfs/Easley%20OHara%20(2004)%20-%20Information%20And%20The%20Cost%20Of%20Capital.pdf (pdf)]
===Slow Moving Capital and Asset prices===
*Gromb, Denis and Vayanos, Dimtri (2002), "Equilibrium and Welfare in Markets with Financially Constrained Arbitrageurs", Journal of Financial Economics [http://www.edegan.com/pdfs/Gromb%20Vayanos%20(2002)%20-%20Equilibrium%20and%20Welfare%20in%20Markets%20with%20Financially%20Constrained%20Arbitrageurs.pdf (pdf)]
*Duffie, Darrell, Semyon Malamud and Gustavo Manso (2009), "Information Percolation with Equilibrium Search Dynamics", Econometrica, Volume 77: 1513-1574. [http://www.edegan.com/pdfs/Duffie%20Malamud%20Manso%20(2009)%20-%20Information%20Percolation%20with%20Equilibrium%20Search%20Dynamics.pdf (pdf)]
