Empirical Market Microstructure
is about the institutions that have evolved to handle our trading needs, the economic forces that guide our strategies, and statistical methods of using and interpreting the vast amount of information that these markets produce. The empirical methods discussed in the book draw on the power of multivariate linear time series analysis. The book discusses the application of univariate ARMA analysis to trade prices, vector autoregressions to price and order data, and vector error correction models to situations where the same security is traded in many markets, as well as strategies to measure and minimize costs.
The book includes numerous exercises, and supporting materials are available on the author's website. Most of the derivations used in the text (and answers to the exercises) are documented both as Mathematica
6 notebooks and in PDF format and can be downloaded from the author's website
Introduction | Trading Mechanisms | The Roll Model of Trade Prices | Univariate Time-Series Analysis | Sequential Trade Models | Order Flow and the Probability of Informed Trading | Strategic Trade Models | A Generalized Roll Model | Multivariate Linear Microstructure Models |Multiple Securities and Multiple Prices | Dealers and Their Inventories | Limit Order Markets | Depth | Trading Costs: Retrospective and Comparative | Prospective Trading Costs and Execution Strategies | Appendix: U.S. Equity Markets