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FIN 602 – Trading and Exchanges

General Information

Traditional asset pricing theory and investment analysis treat the process of price formation as a black box. The actual structure of financial markets does not play a role, and frictions and transaction costs are disregarded. These issues, and market liquidity in particular, are of enormous practical importance. This is evidenced by the great attention regulators pay to issues of financial market structure (e.g. the MiFID directive of the EU), as well as by the attention market participants pay to trading costs. In recent years, many new markets have been created in an attempt to reduce transaction costs (e.g. the ATS in the US or Chi-X and Turquoise in Europe). Much of the order volume in today's markets is generated by computers rather than by human traders. This phenomenon (termed algorithmic trading or high frequency trading) has been accused of destabilizing markets, most importantly in conjunction with the infamous 2010 “flash crash”.

The branch of financial economics that deals with these issues is called market microstructure. This course provides an introduction into the institutional, theoretical and empirical foundations of market microstructure. It then applies these principles to several recent phenomena. We will discuss short selling restrictions, regulation and its effects on competition between market places, and algorithmic trading, to name but a few. The last chapter of the course will discuss relations between market microstructure and other areas of finance such as asset pricing and corporate finance.


Faculty

Prof. Dr. Erik Theissen

Prof. Dr. Erik Theissen

Chair Holder
Chair of Finance

    Further Information

  • Time & Venue

    The course FIN 602 stands on 2 main pillars:


    A regular lecture that will be offered as a non-live video stream. The lecture is taught by Prof. Dr. Erik Theissen. The online stream allows students to watch those videos at their own pace. Once online, those videos will remain available until the end of the semester. During the first 11 weeks of the semester, approximately 90 minutes of recorded lectures will be offered.


    Prof. Theissen offers a weekly Exercise and Q&A session (on Mondays, from 10:15 – 11:45) lagging lectures by one week (thus starting in week 2 and ending in week 12). This session will be live and via Zoom. It will not be recorded. Professor Theissen will present solutions to the end-of-chapter problems There will also be opportunities to ask questions on the contents of the lecture and the exercises (questions that one might otherwise have asked in a live lecture, or in Professor Theissen's office hours). The gap of one week between lecture and Q&A should be used to watch the lecture video, to consolidate any remaining questions, and to try to solve the end-of-chapter questions individually.
    In the first week the slot of the weekly Q&A session will be used for an introduce into the course FIN 602. In particular, Prof. Theissen will explain the organizational details of the course and outline its contents.

  • Language

    The course is taught in English. All materials and the exam will be in English.

  • Exercise Session

    Exercise sessions are integrated in the lecture.

  • Prerequisites & Access

    Target audience of the course are master students. A recommended prerequisite is the course FIN 500 – Investments.