AØKK08396U Financial Markets Microstructure (F)

Volume 2021/2022

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. PhD students must contact the study administration AND the lecturer in order to register for the research module and write the research assignment.



This course examines the financial markets from a Micro perspective. How does a “market” as we know it form from individual traders’ actions? How is the market price determined from individual trades and offers? How is the traders’ dispersed information incorporated into these prices? What determines the liquidity and depth of an asset market? What is the optimal behaviour for traders in financial markets? Why do bubbles and crashes arise? Do the institutional details of the exchange influence this price formation process? If so, how should exchanges and regulators ideally design the rules of trading? 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?


In this course we will address these and related questions. The course seeks to give a broad introduction to the field of Financial Markets Microstructure covering theory, evidence and policy. It also provides deeper insight on topics of current interest on the basis of selected current research papers.


The course partly gives participants a review of the facts on financial markets, partly presents the key theoretical models, and partly addresses how the models are applied to the important issues.

Learning Outcome

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



  • Define types of financial markets and their characteristics

  • Account for the standard theoretical models used to model financial markets

  • Discuss current issues in the financial markets literature



  • Set up financial market problems as game-theoretic models

  • Analyze price formation in different types of financial markets and derive results on measures such as liquidity and market depth

  • Analyze the pros and cons of different market structures seen from the perspectives of different market participants



  • Explain and discuss key theoretical concepts from academic articles, as well as discuss their interpretation

  • Apply the most relevant theoretical apparatus to analyze case-based problems

Thierry Foucault, Marco Pagano and Ailsa Röell: “Market Liquidity: Theory Evidence and Policy,” Oxford University Press, 2013. 439 pages.

Various papers that will be announced later.

The course builds mainly on the knowledge of basic concepts in Finance (types of financial assets, discounting). Students are therefore encouraged to have taken a course in finance, such as "Corporate Finance and Incentives" at the Study of Economics, University of Copenhagen.

We employ basic game theory, on the level presented in the Microeconomics III course (or equivalent) at the Study of Economics, University of Copenhagen. In particular, students are assumed to be familiar with concepts such as Bayes-Nash equilibrium and Perfect Bayesian Equilibrium.

The students are encouraged to have followed "Advanced Game Theory" at the Study of Economics, University of Copenhagen or to follow it in parallel.

Finally, the course assumes the students have confident grasp of probability theory, on the level presented in the course "Probability Theory and Statistics" at the Bachelor in Economics, University of Copenhagen. In particular, students are supposed to be familiar with conditional probabilities and the Bayes' rule, conditional mathematical expectations, and related topics.
Mostly lectures covering the syllabus with a view towards accomplishing the course goals. Supplemented by problem sets.

Restrictions due to pandemic crisis:
The teaching in this course may be changed to be taught either fully or partly online due to a pandemic crisis like COVID-19. In case of changes and further information, please read the study messages in KUnet or the announcements in the course room on Absalon (for enrolled students).
2 hours lectures one to two times a week from week 6 to 20.

The overall schema can be seen at KUnet:
MSc in Economics => "courses and teaching" => "Planning and overview" => "Your timetable"
KA i Økonomi => "Kurser og undervisning" => "Planlægning og overblik" => "Dit skema"

Timetable and venue:
To see the time and location of lectures please press the link under "Timetable"/​"Se skema" at the right side of this page (F means Spring).

You can find the similar information in English at
-Select Department: “2200-Økonomisk Institut” (and wait for respond)
-Select Module:: “2200-F22; [Name of course]”
-Select Report Type: “List – Weekdays”
-Select Period: “Forår/Spring – Week 5-30”
Press: “ View Timetable”

Please be aware:
- The schedule of the lectures and the exercise classes can be changed without the participants´ acceptance. If this happens you can see the new schedule in your personal timetable at KUnet, in the app myUCPH and through the links in the right side and the link above.
- It is the students´s own responsibility continuously throughout the study to stay informed about their study, their teaching, their schedule, their exams etc. through the curriculum of the study programme, the study pages at KUnet, student messages, the course description, the Digital Exam portal, Absalon, the personal schema at KUnet and myUCPH app etc.
  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 152
  • Exam
  • 12
  • Total
  • 206


The lecturer gives collective oral feedback during lectures and individual oral feedback upon request.

7,5 ECTS
Type of assessment
Written assignment, 12 hours
individual take-home exam. It is not allowed to collaborate on the assignment with anyone.
The exam assignment is in English and must be answered in English.
Exam registration requirements

There are no requirements during the course that the student has to fulfill to be able to sit the exam.


All aids allowed

for the written exam.

Information about allowed aids for the re-examination, please go to the section "Re-exam".


Marking scale
7-point grading scale
Censorship form
No external censorship
for the written exam.
An oral re-examination may be with external assessment.
Exam period

The regular exam takes place:

9 June 2022 from 10 AM to 10 PM


Exam information:

More information will be available in Digital Exam.

The Department can change the exam to another day and time than announced. 


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



The reexam takes place:

27 August 2022 from 10 AM to 10 PM



If few students register, it might change to a 20 minutes oral examination with 20 minutes preparation time.

Written aids allowed during the preparation time.

No aids allowed during the examination.


In case of a pandemic crisis the re-sit might change to 20 minutes oral ONLINE exam with all aids, without preparation time.


Exact day, time and place is available in Digital Exam in August.

The Department can change to another type, day, time and place than announced.

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.