Course Outline Capita Selecta Finance II (Financial Markets)

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Course Outline Capita Selecta Finance II (Financial Markets) Powered By Docstoc
					Caput Financial Markets
Final essay

The purpose of the final essay is to write a summary and critical evaluation of an academic
paper on market microstructure. You can choose any of the papers in the attached list, but you
can also pick a paper yourself (but in that case, check with me first whether the paper is
suitable). I guess you need around 5 pages; the maximal length of the essay is 10 pages1.

Some suggestions for the setup of your essay

(1) Start with a short summary of the main point of the paper. What does the paper show?
    Where does it differ from the earlier literature? If the paper is well-written, this should be
    obvious from the introduction.

(2) Summarize and explain the main approach of the paper: the model and method of
    analysis. If it is an empirical paper, also discuss the data and estimation methodology.

(3) Relate the approach and results of the paper to what you learned in the course and, if
    possible, other literature in this area

(4) Finally, give a critical evaluation of the paper, in particular of the following points:
    - Is the question addressed interesting and relevant?
    - Do the results of the paper give new insights?
    - Do you agree with the conclusions of the authors?
    - Comment on the methodology of the paper (theory and empirical methods).

Make your essay readable for the other students who took this course. Ideally, after reading
your essay one can understand what's going on in the paper you discuss, and what your
opinion about this paper is. Grading of the essay will be based on the following criteria
   - Legibility and clarity of the presentation
   - Quality of the summary of the paper and link with other literature
   - Quality and depth of the critical evaluation

The rules of the game:
   - You are expected to write the essay individually. Cooperation is not allowed.
   - There will be a maximum of 3 students writing an essay on the same paper; in order to
       monitor this rule you have to sign up for the essay with me.

The deadline for submission is Friday December 21, 2001

The essay can be written in Dutch or English, and submitted in my mailbox (E4.20) or by e-
mail (preferably in pdf format)

                                    Frank de Jong, Universiteit van Amsterdam, November 2001



1
    Based on A4, one and a half line spacing, 12 pt letter type.
Suggested papers for final essay

There are many more papers on market microstructure; check www.ssrn.com for more titles.
Papers without a journal name are working papers, available from me


On bid-ask spreads and transaction costs:

Amihud, Y., (2000), Illiquidity and stock returns: Cross-section and Time series evidence,
working paper New York University

Affleck-Graves, J., S. Hedge and R. Miller (1994), Trading mechanisms and the components
of the bid-ask spread, Journal of Finance 44, 1471-1488.

Anderson, R. and P. Tychon (1993), Competition among European Financial markets: the
case of cross-listed Belgian equities.

Balduzzi, P., E. Elton and C. Green (1997), Economic News and the Yield Curve: Evidence
from the U.S. Treasury Market, New York University, Salomon Center, Working Paper:
S/98/05, October 1997

Choi, J., D. Salandro and K. Shastri (1988), On the estimation of bid-ask spreads: Theory and
evidence, JFQA 23, 219-230.

Degryse, H. (1996), The total cost of trading Belgian shares: Brussels versus London.

Domowitz, I., J. Glen and A. Madhavan (2000), Liquidity, Volatility and Equity Trading
Costs Accross Countries and over Time, working paper

Easley, D., M. O'Hara and G.Saar (1999), How stock splits affect trading: A microstructure
approach, working paper

Glosten, L. (1987), Components of the bid-ask spread and the statistical properties of
transaction prices, Journal of Finance 42, 1293-1307.

McInish, Th. and R. Wood (1992), An analysis of intraday patterns in bid/ask spreads for
NYSE stocks, Journal of Finance 47, 753-764.

Petersen. M. and D Fialkowski (1994), Posted versus effective spreads: Good prices or bad
quotes? Journal of Financial Economics 35, 269-292.

Reinganum, M. (1990), Market microstructure and asset pricing: An empirical investigation
of NYSE and NASDAQ securities, Journal of Financial Economics 28, 127-147.

Sandas, P. (1998), Adverse selection and competitive market making: Empirical evidence
from a pure limit order market.

Saporta, V., G. Trebeschi and A. Vila (1999), Price formation and transparency on the
London Stock Exchange.
On price discovery:

Cao, C., E. Ghysels and F. Hatheway (1998), Why is the bid greater than the ask? Price
discovery during the Nasdaq pre-opening.

Biais, B., P. Hillion and C. Spatt (1996), Price discovery and learning during the preopening
period in the Paris bourse.

Fleming, M., and E. Remolona (1999), Price Formation and Liquidity in the US Treasury
Market: The Response to Public Information, Journal of Finance 54(5), 1901-15.

Hasbrouck, J. (1995), One security, many markets: determining the contributions to price
discovery, Journal of Finance 50, 1175-1199.

Hau, H. (2000), Information and Geography: Evidence from the German Stock Market,
working paper

Holthausen, Leftwich and Mayers (1990), Large block transactions, the speed of response and
temporary and permanent price effects, Journal of Financial Economics 26, 71-95.

Hupperts, E. and B. Menkveld, Intraday Analysis of Market Integration: Dutch Blue Chips
trades in Amsterdam and New York, working paper Erasmus Universiteit

Jones, C. and M. Lipson (1999), Price impact and quote adjustment on the NASDAQ and
NYSE/AMEX, working paper

Keim, D., and A. Madhavan (1992), The upstairs market for large block transactions: analysis
and measurement of price effects.

Werner, Ingrid and A. Kleidon (1996), U.K. and U.S. Trading of British Cross-Listed Stocks:
An Intraday Analysis of Market Integration, Review of Financial Studies 9(2), 619-64.


On trading behaviour

Foucault, T., A. Roell and P. Sandas (1999), Imperfect Market Monitoring and SOES
Trading, working paper, HEC

Hansh, O. and A Neuberger (1996), Strategic trading by market makers on the London stock
exchange, working paper

Harris, L. and V. Panchapagesan (1999), The information content of the limit order book:
Evidence from NYSE specialist actions, working paper University of Southern California

Madhavan and Sofianos (1998), An empirical analysis of NYSE specialist trading, Journal of
Financial Economics 48, 189-210.

On market design:
Bloomfield, R. and M. O'Hara (2000), Can transparent markets survive?, Journal of Financial
Economics 55, 425-459.

Cordella, T. and T. Foucault (1998), Minimum Price Variations, Time Priority and Quote
Dynamics, working paper HEC

Fong, K., A. Madhavan and P. Swan (2000), Why do markets fragment? A panel-data
analysis of off-exchange trading, working paper

Foucault, T. and C. Parlour (1999), Competion for Listings, working paper HEC

Glosten, L. (1994), Is the electronic open limit order book inevitable?, Journal of Finance 49,
1127-1161.

Harris, L. (1996), Does a large minimum price variation encourage order exposure?

Harris, L. and V. Panchapagesan (1999), The information content of the limit order book:
evidence from NYSE specialist actions, working paper

Kalay, A., L. Wei and A. Wohl (2000), Continuous Trading or Call Auctions: Revealed
preferences of investors at the Tel Aviv Stock Exchange, working paper

Naik, N., A. Neuberger and S. Viswanathan (1994), Disclosure regulation in competitive
dealership markets: Analysis of the London Stock Exchange.

Parlour, C. and D. Seppi (1996), Liquidity based competition for order flow


On inventory models:

Carrera, J., P. Pope and S. Taylor (1999), The determinants of trading volume: Information
flow and inventory control, working paper Lancaster University

Naik, N. (1998) and P. Yadav (1998), Portfolio considerations in inventory risk management
in dealerships markets: Evidence from the London Stock Exchange.

Hansh, O., N. Naik and S. Viswanathan (1998), Do inventories matter in dealership markets:
Evidence from the London Stock Exchange, Journal of Finance 53, 1623-1656.

Lyons, R. (1995), Tests of microstructural hypotheses in the foreign exchange market,
Journal of Financial Economics 39, 321-351

Lyons, R. (1997), A simulatneous trade model of the foreign exchange hot potato, Journal of
Financial Economics 42, 275-298.

Madhavan, A. and S. Smidt (1991), A Bayesian model of intraday specialist pricing, Journal
of Financial Economics 30, 99-134.