Empirical Market Microstructure
Spring 2004


Ingrid M. Werner


818 Fisher Hall


3/19, 3/22, 3/24, 3/26, 4/2, 4/9, 3:00-6:00pm


P2011 except on Wednesday, 3/24 – D1220


Immediately Following Class




(614) 292-6460

Class Updates
Last Updated: April 11, 2004

*Course Outline and Schedule (.pdf)
*Brief Course Description (below)
*Schedule (.htm)  


Empirical Problem Sets and Data

Slides for Introductory Session
Slides on Market Structure

Final Exam – Paper to Referee


1.         Outline

This course is concerned with the workings of financial markets on the micro level.  We study both the core theoretical models of trading processes, and the rich empirical literature that tests the proposed theories.  While market microstructure theory is well developed (See, e. g., O’Hara (1995)), no single model is capable of capturing all the complex attributes of real-life securities markets.  Therefore, it should not come as a surprise that a tremendous amount of work in the literature has been devoted to developing “stylized facts” from real markets.  In fact, many of the theoretical models were developed to explain patterns in microstructure data that were observed by empiricists (e.g., Admati and Pfleiderer (1988)).


2.         Course Materials

We will use materials from a course-outline that Prof. Maureen O’Hara, Cornell University, and I prepared for the Nasdaq Educational Foundation (NEF).  These materials can be found on this web-page.


We will also rely on an excellent set of teaching notes that Prof. Joel Hasbrouck, New York University, has made available to us free of charge.  You may download the notes in .pdf format (about 200 pages) from Prof. Hasbrouck’s web-site.  The notes are also available in .html format (which among other things includes Mathematica code).


Hasbrouck, Joel, 2004, Empirical Market Microstructure, Economic and Statistical Perspectives on the Dynamics of Trade in Securities Markets, January 8.

Source:             http://www.stern.nyu.edu/~jhasbrou


Finally, you should acquire the standard textbook for PhD level courses in the area:

O’Hara, Maureen, 1995, Market Microstructure Theory, Blackwell Publishers.


For those of you that are relatively unfamiliar with the institutional detail of securities markets and the securities industry, a good source for information is:

Harris, Larry, 2003, Trading and Exchanges, Market Microstructure for Practitioners, Oxford University Press.


3.                              Assignments

Microstructure data is both rewarding and challenging to work with.  The data sets are large in terms of the number of observations, but often small in terms of calendar time.  They are “fresh” in that the first transactions data sets date from the early 1990s.  At the same time, these datasets quickly become “stale” since market structures have an annoying tendency to change rapidly. 


The only way to appreciate the challenges an empirical researcher in market microstructure faces is to actually do hands-on work with market microstructure data.  Hence, we will use a number of empirical exercises based on data from different markets around the world during the course.  These empirical exercises will require some SAS programming skills, and lots of patience in dealing with large data sets.  Most of the problem sets and data that you need are available from my web-page (see above).  There are also a few case studies included in Prof. Hasbrouck’s notes that we will use, and the data and code for these problems are available on his web-page (see above).


Laura Tuttle, one of my PhD students at OSU who has extensive experience working with microstructure data has kindly agreed to help us with the empirical exercises.

Teaching Assistant:   Ms. Laura Tuttle
E-mail:                         tuttle.58@osu.edu

4.                  Schedule


The course will be given in compressed format, and we will meet on the following dates and times:


Friday 3/19, 3:00-6:00pm, P2011

Monday 3/22, 3:00-6:00pm, P2011

Wednesday 3/24, 3:00-6:00pm, D1220

Friday 3/26, 3:00-6:00pm, P2011

Friday 4/2, 3:00-6:00pm, P2011

Friday 4/9, 3:00-6:00pm, P2011


5.         Examination


The empirical assignments account for 75 percent of the course grade, and there will be a final take-home exam for the remaining 25 percent.