Academic Year 2021/2022

  • Teaching Mode: Traditional lectures
  • Campus: Bologna
  • Corso: Second cycle degree programme (LM) in Law and Economics (cod. 9221)

Learning outcomes

This course teaches the theory of financial market microstructure, that is how asset prices are formed as a direct result of explicit trading rules. It also analyzes how different regulatory settings impact on the dynamic price mechanisms. A special attention is devoted to trading systems on stock exchanges and other financial markets. The role of algorithmic trading is explicitly taken into account in the light of the recent regulatory evolution. At the end of the course, students understand the determinants of transaction costs and the dynamics of prices, quotes and volumes.

Course contents

The course aims to provide students with the basic knowledge about microstructure concepts. The focus is on both institutional details (the organization of the most important financial markets) and on technical aspects.

In general, our goal is to analyze the characteristics of market and trade behavior, taking into specific account the impact of new technologies on market structure and microstructure. We examine the interaction of technology and regulation and its effect on market structure and on traders' behavior.

Specifically, we analyze the role of investors, brokers, dealers, arbitrageurs, retail traders, buy-side traders, day traders, rogue traders and gamblers. We study the different types of orders: limit orders, market orders, stop orders. Some aspects related with insider trading, front running and market manipulation are also explored, together with the recent phenomena of dark pools. Special attention will be dedicated to High Frequency Trading and Algo Trading and Optimal Execution Strategies, given their massive importance in the recent evolution of financial markets.


The primary textbook references are:

1. Thierry Foucault, Marco Pagano, Ailsa Roell, "Market Liquidity: Theory, Evidence, and Policy", Oxford University Press, 2013. (FPR 2013 - selected chapters)

2. John C. Hull, "Options, Futures and Other Derivatives", 10th ed., Pearson, 2018 (H2018 - selected chapters)

We might also use material from the following sources:

Frank de Jong and Barbara Rindi, "The microstructure of financial markets", Cambridge University Press, 2009. (dJR 2009)

Joel Hasbrouck, "Empirical Microstructure Models", Oxford University Press, 2007 (H2007)

Other material:

Lecture notes

Additional references may be provided during the course.

Teaching methods

Each class is organised in two distinct part: in the first part an overview of the topic is given by the instructor. In the second part there will be active class discussion.

Class participation is crucial. A detailed schedule with lesson by lesson reading assignments will be provided at the beginning of the course. Students are expected to read the material and participate to the class discussion.

Assessment methods

1.Class participation (10%), assessing the ability to discuss the material in the active class discussions.

2. Paper (15 pages max. including figures and bibliography - counting for 40% of the final grade), assessing the ability to manage and apply the methods and knowledge absorbed during the entire course. Topics for the paper will be delivered during the second week of the course. Students will present their papers in class during the last two lectures. They are strongly encouraged to work in groups of two.

2. Written exam (counting for 50% of the final grade). A 1 and a 1/2 hour, closed-book written examination, testing the theoretical knowledge acquired during the course.

The exam consists of 2 open questions on the material covered in class. Each question is worth a maximum of 16 points and the whole exam is worth a total of 32 points maximum. Students with 31 or 32 points get a "30 cum laude" mark.

In their answers, students have to prove a good mastering of the topics, ability to perform critical analysis and appropriate technical jargon.

Therefore, excellence (16 points or cum laude) is awarded to answers showing excellent mastering of the topic (exhaustive, correct and complete), excellent analysis and perfect use of the jargon.

Sufficiency (9 - 10 points) is achieved with correct answers, showing a satisfactory ability to perform critical analysis and mostly correct jargon.

Good performance (11 - 13 points) is achieved with correct answers, showing a good level of completeness and exhaustivity and fairly good critical analysis.

Very good performance (14 - 15 points) is achieved with correct, fully exhaustive and complete answers, showing a very good critical thinking.

Non programmable calculators are allowed during the exam. However, no substitutes (cell phones, tablets or similar) are permitted. Students are allowed to bring a single, one-sided sheet (A5 size) containing formulas for their exclusive use.

Teaching tools


Links to further information


Office hours

See the website of Emanuela Carbonara


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