From the Inside Flap
“Market microstructure is the most exciting area of research in quantitative finance today. The conference in Paris in 2010 brought together many of the world’s leading researchers, and this volume contains a large number of their contributions. It promises to be a foundation document for future work on this promising subject.”—Robert Almgren, co-founder and Head of Research, Quantitative Brokers
“Financial markets and High Frequency Trading (HFT) are in the middle of a fierce political and societal debate. The truth is that we do not have firmly established scientific answers. Yet, policy makers must take decisions and it is important to update them with the current understanding coming from experts and academia. This book presents a very good effort at bringing together and confronting the view points of different fields of study. Let’s hope it will serve to encourage a fruitful and necessary discussion amongst all the actors of this important debate.”—Stéphane Tyc, Global Head of Quant Research, Equity and Commodity Derivatives, BNP Paribas
“State of the art contributions by the best experts in the field of market microstructure.”—Michel Crouhy, Head of Research & Development, NATIXIS
“The growth of electronic trading has greatly increased interest in the microstructure of exchange markets. With the widespread availability of electronic data, empirical researchers have obtained new insights into how high frequency traders supply liquidity and into how buy-side traders can best arrange their trades. The articles in this volume provide excellent entry points to all analysts interested in electronic trading markets.”—Larry Harris, Fred V. Keenan Chair in Finance, USC Marshall School of Business
From the Back Cover
Microstructure theory is a branch of economics that studies the mechanisms of price formation on financial markets. Such understanding is crucial in helping the regulators concerned with the organization of liquidity in electronic markets and the issues raised by high frequency trading. Thanks to the amount of available data and the development of high frequency trading, market microstructure is now a mature practical field where precise, quantitative theories can be tested with accuracy. Quantitative research of this kind has always been at the forefront of innovation and development in finance and the mechanism of price formation is at the very heart of modern financial economics.
Market Microstructure: Confronting Many Viewpoints examines and compares different views on the nature of the mechanisms ruling the behaviour of markets. Important topics such as the interplay between liquidity taking and providing, the various types of market impact, the statistical tools specifically designed to handle high frequency data, or best-execution and other algorithmic trading strategies, are presented by renowned experts who were invited speakers at the Market Microstructure, Confronting Many Viewpoints conference held in Paris, 6–10 December 2010. Their contributions shed new light on market microstructure as an object for scientific study as well as a wealth of information for price discovery and trading.Separated into four parts, Part One explores economic microstructure theory through algorithmic trading and order choice and information in limit order markets. Part Two discusses high frequency data modelling using quasi-likelihood analysis and limit theorems and looking at high frequency correlation results. Part Three then moves to market impact models and examines evidence from NASDAQ ITCH data. Finally, Part Four concludes the book with optimal trading and the role of transaction cost structure. This book provides the latest research into market microstructure and features contributions from some of the leading minds in the area, from academia, where the concepts have their origins, to market practice, where these ideas materialise.