Course 2025-2026 a.y.

The course is structured around three interlinked building blocks: understanding the working of financial markets, developing theoretical models, and analyzing empirical evidence. A thorough knowledge of how modern trading platforms function is the prerequisite within the course for building rigorous models and interpreting empirical data correctly. We proceed logically from the functioning of trading mechanisms to modeling market behavior and causal relationships, integrating empirical testing at every stage. Theory and empirics are blended throughout: each theoretical model is followed by empirical analysis using real-world, high-frequency financial data to test its predictions and assess practical relevance. This integrated approach ensures a coherent, practically relevant understanding of market functioning, design, and regulation.

By the end of the course, students will have a solid understanding of how modern financial markets function, including trading mechanisms, market structure, and regulatory frameworks. They will be familiar with key theoretical models used to analyze market behavior under asymmetric information, as well as empirical techniques to evaluate transaction costs, liquidity, and the effects of changes in market design. Students will also understand how to work with high-frequency financial data and recognize the role of behavioral biases and algorithmic strategies in shaping market outcomes.

Students will be expected to apply the concepts, models, and empirical tools learned in the course to assess real-world trading environments, interpret high-frequency data, and evaluate the effects of changes in market design and regulation. They will be able to formulate and test theoretical predictions, support decision-making in trading or regulatory contexts, and communicate results clearly in both written and oral form. The course also fosters active engagement through class interaction and group discussions, encouraging the development of critical thinking, quantitative reasoning, and communication skills essential for professional practice in finance, research, and policy.

• Lectures
• Guest speaker's talks (in class or in distance)

The course will be delivered through a combination of:

• lectures
• practical exercises.

Active interaction - both among students and between students and the instructor - will be strongly encouraged and facilitated throughout the course. Discussions, questions, and collaborative analysis will form an integral part of the learning experience, supporting critical thinking and peer learning.

Attending students will be assessed through an individual written exam designed to evaluate their understanding of selected core topics from the course.

The exam may include both closed and open-ended questions. Closed questions will consist of practical exercises based on the first part of the course (focused on the functioning of financial markets), while open-ended questions will assess students’ ability to reason through and explain key theoretical concepts.

Please note that the exam does not cover the entire course. 

Since empirical content is integrated into both the market functioning and theory sections, students may choose to focus their preparation on:

• the first part of the course (working of financial markets),
• the second part (theoretical models and policy implications), or
• a combination of both.

A detailed list of the topics relevant for the exam will be provided by the end of the course to support effective preparation.

Non-attending students have the option to choose between taking the written exam or submitting an individual essay. The essay topic must be agreed upon in advance with the instructor and should reflect the student’s ability to apply the theoretical and empirical tools covered in the course to a relevant question in financial market design or regulation.

The core of the course will be based on:

·       Lecture notes - posted on BBoard before each lecture

Additional material for background reading (not compulsory):

·       Selected journal articles

·       de Jong, F. and Rindi, B. (2009), The Microstructure of Financial Markets, Cambridge University Press

·       Foucault, T., M. Pagano and A. Roell (2013), Market Liquidity: Theory, Evidence, and Policy, Oxford University Press.

·       Harris, L. (2003), Trading & Exchanges, Oxford University Press – Chapters 4, 5, 6

·       Johnson, B. (2010), Algorithmic Trading & DMA, Myeloma Press

·       Hasbrouck, J. (2007), Empirical Market Microstructure, Oxford University Press

·       London Stock Exchange (2023), MIT201 – Guide to the Trading System, Issue15.4 (effective from 20 February 2023)