DRE 4028 Market Microstructure and Frictions
This course gives an introduction to models for understanding the importance of frictions in real-world financial markets. By frictions we mean deviations from the most basic set of assumptions underlying a competitive equilibrium. The first part covers the field of Market Microstructure, focusing on market institutions, asymmetric information and liquidity provision. The second part discuss several important applications where addressing frictions has improved our understanding of functioning of financial markets. Both theoretical and empirical approaches will be discussed.
Students should understand:
- Importance of frictions for financial markets
- Key sources of friction
- Main theoretical models for dealing with frictions
- Main empirical approaches for studying importance of frictions
- Solve key theoretical models
- Manage high-frequency data
- Conduct statistical tests
Students should have a good understanding of existing theories and be able to replicate key empirical studies
Market Microstructure (8 hours):
- The frictionless benchmark
- Information asymmetries
- Liquidity provision
- Empirical approaches
Frictions: Some applications (8 hours):
- Market liquidity and funding liquidity risk
- Proxies for “the” risk-free interest rate
- Limits of arbitrage (theory)
- Limits of arbitrage (empirics)
- Exercises that focus on both theoretical and empirical problems. Relevant data for the empirical problems will be provided
- Attendance is mandatory (class participation counts 30 percent)
Enrollment in a PhD Programme is a general requirement for participation in PhD courses at BI Norwegian Business School.
External candidates are kindly asked to attach confirmation of enrollment in a PhD programme when signing up for a course. Other candidates may be allowed to sit in on courses by approval of the courseleader. Sitting in on a course does not permit registration for the course, handing in exams or gaining credits for the course. Course certificates or confirmation letters will not be issued for sitting in on courses.
Deviations in teaching and exams may occur if external conditions or unforeseen events call for this.
|Exam category||Weight||Invigilation||Duration||Grouping||Comment exam|
Form of assessment:
Examination when next scheduled course
|Form of assessment:||Written submission|
|Exam code:||DRE 40281|
|Resit:||Examination when next scheduled course|
Student's own work with learning resources
Prepare for teaching
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 3 ECTS credit corresponds to a workload of at least 80 hours.