AØKK08396U Financial Market Microstructure (F)

Volume 2026/2027
Education

MSc programme in Economics – elective course
 

The PhD Programme in Economics at the Department of Economics:

  • The course is an elective course with research module. In order to register for the research module and to be able to write the research assignment, the PhD students must contact the study administration AND the lecturer.

 

The course is open to:

  • Exchange and Guest students from abroad
  • Credit students from Danish Universities
  • Open University students
Content

This course examines financial asset markets from a theoretical microeconomic perspective. How do traders’ orders form market prices, and how do prices come to embody information that is initially dispersed across traders? What is optimal trader behavior when interacting with other traders? What features of the trading environment determine the liquidity and depth of an asset market? Why do bubbles and crashes arise?

 

Can the institutional details of an exchange influence the price formation process? If so, how should exchanges and regulators ideally design the rules of trading? For example, is there a role for market making, should the market be fully transparent, should insider trading be permitted, should transactions be taxed, and is high-frequent trading good or bad for the market?

 

This course addresses these and related questions. The course seeks to give a broad introduction to the field of market microstructure covering theory, evidence and policy. It also provides deeper insight into topics of current interest, based on selected current research papers.

 

The course partly gives participants a review of some facts on financial asset markets, partly presents some key theoretical models, and partly addresses how these models are applied to address the main questions.

Learning Outcome

After completing the course the student is expected to be able to:

 

Knowledge:

  • Know key theoretical concepts, questions, models, and results from the academic literature on microstructure (foundation).
  • Identify and evaluate key modeling assumptions in an advanced, mathematically specified theoretical framework of microstructure (formal modeling).
  • Account for the economic mechanism underlying given theoretical results on microstructure and discuss their interpretation (intuition).

 

Skills:

  • Assess whether various modeling assumptions are realistic in given real-life asset market settings (foundation).
  • Derive and analyze formal results within an advanced, mathematically specified theoretical microstructure framework (formal modeling).
  • Argue whether theoretical insights from academic microstructure articles can shed light on given market settings and events and/or support given policy proposals (application to cases).

 

Competences:

  • Compare and contrast different theoretical concepts of microstructure and explain their key similarities and differences (intuition).
  • Discuss to what extent mathematically derived results from microstructure models relate to their more informal interpretation (formal modeling).
  • Discuss new market events and policies and evaluate whether theoretical insights from various articles can shed light on these events and policies (application to cases).

Foucault, Thierry, Marco Pagano, and Ailsa Röell. “Market liquidity: theory, evidence, and policy,” (2nd ed.) Oxford University Press, 2024. 536 Pages

Various papers that will be announced later.

Participants benefit from having followed the course "Financial Decision Making," or an equivalent introduction to the field of Finance, including basic models of financial asset pricing.

Participants are expected to have followed both “Microeconomics II” and “Microeconomics III” or equivalent, as they introduce theoretical concepts and methods that will be employed in this course.

Participants benefit from having followed “Probability Theory and Statistics” or equivalent, since the theoretical models rely on basic probability theory.
The teaching activities consist of lectures where students are expected to actively participate.
  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 161
  • Exam
  • 3
  • Total
  • 206
Written
Oral
Individual
Collective
Continuous feedback during the course of the semester

 

The lecturer gives individual written feedback to mandatory assignments as well as collective oral feedback to debates in lectures.

Credit
7,5 ECTS
Type of assessment
On-site written exam, 3 hours
Examination prerequisites

1 out of 1 assignments must be approved for the student to participate in the exam.

Aid
Only certain aids allowed (see description below)

Written aids allowed.

Marking scale
7-point grading scale
Censorship form
No external censorship
Exam period

Exam information:

The examination date can be found in the exam schedule  here

More information is available in Digital Exam from the middle of the semester. 

More information about examination, rules, aids etc. at Master (UK) and Master (DK).

Re-exam

Same as the ordinary exam. 

 

Reexam information:

The reexamination date/period can be found in the reexam schedule  here

More information in Digital Exam in August. 

More info: Master(UK) and Master(DK)

Criteria for exam assesment

Students are assessed on the extent to which they master the learning outcome for the course.

 

In order to obtain the top grade “12”, the student must with no or only a few minor weaknesses be able to demonstrate an excellent performance displaying a high level of command of all aspects of the relevant material and can make use of the knowledge, skills and competencies listed in the learning outcomes.

 

In order to obtain the passing grade “02”, the student must in a satisfactory way be able to demonstrate a minimal acceptable level of  the knowledge, skills and competencies listed in the learning outcomes.