B40.3149 Spring (January mini-term) 2011
Professor Joel Hasbrouck
Where are we now? Jump to schedule
This class is about market microstructure and trading. Many Stern Finance courses are about the securities that get traded (stocks, bonds, options, and so on) and how they should be valued. This course looks at how securities are traded: the operation and design of trading mechanisms and protocols. The main course prerequisite is B01.2311 (Foundations of Finance). In that class you probably spent a session covering the NYSE, Nasdaq, types of orders, etc. The reading was Chapter 3 (“Financial Markets”) in Bodie, Kane and Marcus, either Investments or Essentials of Investments. This class takes that session/material as the point of departure./p>
The main focus of the course is the continuous limit order book, the mechanism used for most trading in futures, options and stocks worldwide. But other protocols are used as well, so we’ll also look at auctions, open-outcry (“pit” or “floor”) markets, and their variations. The course draws on material from classical economic theory, behavioral economics and finance, and statistics. Although the course will cover many strategic aspects of trading, it is not primarily about trading systems or proprietary trading.
The course is aimed at people who are working for (or plan careers in) securities exchanges, securities trading, or trading support systems. It is a specialized course: it goes into great detail about the mechanics of trading processes.
Class sessions will involve lectures, discussions and exercises. There will be one or more simulations (stylized trading games). These will count toward the final grade, so class attendance is very important.
The class sessions are:
|Thursday, Jan 27, 6-9pm|
Please make sure that you can attend all sessions before you sign up for the course.
The final grade in the course will depend on three things
There will be two trading games in which you'll be buying and selling in situations designed to mimic actual securities markets. Your relative profits in these games will make up 15% of your overall grade for the course. The games will be fun. But you'll also learn something about financial markets, trading strategies, and the importance of thinking about the behaviors and reactions of others. The games, in brief, are:
To get a sense of what is going in markets, it is very useful to analyze actual market data. We'll be looking at a sample of trade and quote data.
As indicated in the email, I've streamlined the exercise. The current version of the write-up is MarketData2.pdf; the spreadsheet is CTQ2009.xlsx.
Just for reference, I'm leaving the pre-snowfall versions of the exercise: the write-up is MarketData1.pdf. The spreadsheet is TAQData2009.xlsx.
The final exam will be
The textbook for the course is Algorithmic Trading and DMA: An introduction to direct access trading strategies (Barry Johnson, 2010, 4Myeloma Press), abbreviated here as ATDMA. The course is not primarily about algorithmic trading or direct access trading strategies (although we will be discussing them). Instead, I'm using the book because it has a very nice overview and organization.
Note: The NYU bookstore has told me that the publisher sells only through Amazon. So you'll have to buy the book there. While I realize that this is somewhat inconvenient, I might also point out: (a) the price (at around $40) is very low for a textbook; and (b) it's well worth it. Note: given that there are about sixty students enrolled in the course, I am concerned about ordering bottlenecks. Please order the book no later than Friday, January 7.
The syllabus has other readings as well. They are in the public domain. Links are provided.