Liquidity, Price Discovery, and Market Design
Registrations open in late 2018
This course covers standard models of price discovery and asset illiquidity in financial markets. It will discuss how and why trades impact asset prices, relating this impact to asymmetric information, inventory holding costs for intermediaries (e.g., securities dealers), and market design (transparency, inter-market competition, matching rules, high frequency trading etc.). It will also present empirical techniques to assess the contribution of these factors to securities illiquidity and price volatility and discuss policy applications.
- Models of price discovery and illiquidity in financial markets
- Estimation of adverse selection costs and inventory holding costs
- Market design and policy (market transparency, algorithmic and high frequency trading, OTC vs. centralized trading)
What you will learn
- You will learn an understanding of the various frictions affecting the liquidity of an asset.
- You will learn how to use data to measure the relative contribution of these frictions to illiquidity.
- You will learn how to study the effect of changes in market structure on measures of market quality (e.g., liquidity, priced discovery, volatility)
- You will learn an understanding of current policy debates on the organization of trading in securities markets (high frequency trading, market transparency, centralization vs. decentralization of trading).
- You will learn why illiquidity, price discovery and volatility are related concepts.
How the course will work
Total course length: 12 hours.
The course will include lectures as well as practical exercises using the statistical analysis software E.Views. There will be one tutorial session on E.Views and two practical sessions (exercises) using this software (3 hours).
A certificate of attendance will be provided to all participants after the course.
Meet the instructor
Thierry Foucault is HEC Foundation chaired Professor of Finance at HEC, Paris and a research fellow of the Centre for Economic Policy (CEPR). He has taught in various institutions, including Universitat Pompeu Fabra, Carnegie Mellon University, EPFL, Studienzentrum Gerzensee, Saïd Business School in Oxford, and the Tinbergen Institute. His research focuses on the determinants of financial markets liquidity, the industrial organization of these markets, and their effect on the real economy. He serves or served on the scientific committees of the Autorité des Marchés Financiers (AMF), the Norwegian Finance Initiative (NFI), the Research Foundation of the Banque de France, the Group of Economic Advisors of the Committee of Economic and Markets Analysis of the European Securities and Markets Authority (ESMA). He is currently an Editor of the Review of Asset Pricing Studies, and an Associate Editor of the Journal of Economic Theory, the Journal of Finance, and the Review of Financial Studies. He was co-editor of the Review of Finance from 2009 to 2013. He co-authored, with Marco Pagano and Ailsa Röell, “Market Liquidity: Theory, Evidence, and Policy”, a textbook on market liquidity published by Oxford University Press in 2013.
Degree in Economics (Msc level or equivalent). Basic knowledge of economics under uncertainty, information economics, and asset pricing is required to follow the course.
Course participants are required to bring a laptop equipped with the statistical software Eviews (version 9.0).
Information on course fees will be published in Autumn 2018.
On arrival, participants will be provided with temporary wi-fi access for the whole duration of the course.