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.


Prof. Dr. Erik Theissen

Prof. Dr. Erik Theissen

Chair Holder
Chair of Finance

Further Information

  • Time & Venue

    There will be weekly lectures with integrated exercise sessions during the first half of the fall semester 2022. The weekly lectures start Friday, September 9th, and take place from 12pm (noon) until 5pm in O145. The last lecture is probably on October 21st.

  • 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.