INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR

Course: Market Microstructure (2015)

Code: HS30096
Instructor: Gourishankar S. Hiremath
Goals and Outcomes
This course is specially designed for IIT undergraduates to introduce them to the trading
mechanism. The course familiarizes the students how markets actually work and how trading
mechanism and infrastructure influence prices and markets. The course also focuses on
certain contemporary theories about the working of financial markets. After the course, the
students would appreciate the working of financial markets. The course provides a good
preparation for other advanced courses in finance.
We will start most of the concepts from the very basics. The course will build up to advanced
topics, so the learning curve will be very steep if you do not satisfy the prerequisites.
Pedagogy
The current course uses mix of case studies (heavy), group discussions, and supplemented by
lectures. The course stresses two-way communication of learning and hence onus placed on
participants is more than instructor is. The emphasis is on problem solving and managerial
competence.
Prerequisites
Genuine interest, an aptitude towards problem solving approach and participation in the class
discussion is essential. This course is suitable for those interesting in understanding how
financial market works in real and interested to learn theories to solve real life problems.
Course though uses some mathematics, but course heavily relay on descriptive analysis
supplemented by data.
It is not suitable for those interested in pure mathematical approach.
Evaluation Criteria
The performance in the class participation, mid semester exams and end semester exam will
be evaluated for final grading. Depending on number of students, load of semester exams will
reduced to compensate by group discussion, presentation or mini projects.
Basic Texts:
Larry Harris, Trading and Exchanges: Microstructure for Practitioners, Oxford University
Press, India
Zvi Bodie, Alex Kane, and Alan Marcus, Investments. McGraw Hill Education, India
David G. Luenberger, Investment Science, Oxford University Press India

Reference Texts
Maureen OHara, Market Microstructure Theory, Wiley-Blackwell
Joel Hasbrouck, Empirical Market Microstructure: The Institutions, Economics, and
Econometrics of Securities Trading, Oxford University Press, USA
Visiting Hours
You can discuss right after the class if you have any questions.
Write email if you have questions
If you need personal meeting/discussion, please write an email or call to seek appointment

Office location and contact details:

Room No: S. 209 C
First Floor
Humanities and Social Sc iences
Main building
Email: gshiremath@hss.iitkgp.ernet
gsdastapur@gmail.com
Telephone: +91 32222 283632

Contents
Text Reading
Additional Reading
Case
Introduction to Financial System: Questions in Chapter 1 & 2: Making the financial markets safe: a IPO Case
finance: Financial Decisions of Households and Investments
conversation with Robert Merton. Financial Markets of China
Firms; Financial System: Flow of funds, Generic
Harvard Business Review
Principles of Investment; Functions and Structure
of financial markets; Primary Market: Underwriting
Innovation Killers: How Financial
and IPOs; Financial Innovations
Tools Destroy Your Capacity to Do
New Things. Harvard Business Review
Trading Mechanism: Motivations for Trading;
Trading of securities: Buy side and sell side; price
quotes; bid-ask spreads, Order, Market Orders,
Market structures, benefits of trade; Buying on
margin and short selling, Regulation of securities
trading: Price limits Circuit breakers, Brokers;
Insider trading; HFT and ECNs

Chap. 4-7 & 29:

Trading
and
Exchanges
Chap.
3:
Investments

Types of Traders
Liquidity Providers:
arbitrageurs

Part IV: Trading

and Exchanges

Dealers,

value

traders,

Competition to provide liquidity on the Selling

Short
Green
New York Stock Exchange. Battalio, R Mountain Coffee Roasters
and Jennings, R (2007): Business
Horizons (2007) 50, 513522
Wall street crash
High frequency trading and dark Big Bull Harshad Mehta
pools:An interview with John Succo.
Emory and Selmier, II Business Insider trading case
Horizons (2013) 56, 715722
NSE India case
Movie: Trading Centre
Gafla
Will update if any

NASDAQ stock market

Arbitrageurs case

Asset price dynamics and capital markets: prices

and returns; stylized facts for financial returns;
Theories of risk and returns: The capital asset
pricing model; Arbitrage pricing theory; Rational
expectation hypothesis and efficiency of financial
markets

Chap. 9, 11 & 12: Will update if any

Investments
Chap.
7,
Investment Science

CAPM case
market

efficiency

Economics of Financial System: Financial

Intermediaries Reduce: Transactions Costs;
asymmetric Information: Adverse Selection and
Moral Hazard: Lemons in the stock and bond
markets; Moral hazard in equity and debt contracts

Chap.
8
. Will update if any
Economics
of
Money, Banking,
and
Financial
Markets,
The,
Student
Value

Fremont case
intermediary)
Glaxo case

(Financial

Capital
case

Edition
Edition)
6

Participants/Students Feedback Based

(9th

Here
your
suggested topics
will be included

I will suggest the readings based on

your
recommendations/requests/suggested
topics

I will suggest the readings

based
on
your
recommendations/requests/
suggested topics