Trades, Quotes and Prices
Financial Markets Under the Microscope

A deep-dive into the heart of modern financial markets, the authors explore why and how people trade - and the consequences.

Jean-Philippe Bouchaud (Author), Julius Bonart (Author), Jonathan Donier (Author), Martin Gould (Author)

9781107156050, Cambridge University Press

Hardback, published 22 March 2018

460 pages, 79 b/w illus. 7 tables
25.3 x 17.8 x 2.5 cm, 1.05 kg

'This is a masterful overview of the modern and rapidly developing field of market microstructure, from several of its creators. The emphasis is on simple models to explain real and important features of markets, rather than on sophisticated mathematics for its own sake. The style is narrative and illustrative, with extensive references to more detailed work. A unique feature of the book is its focus on high-frequency data to support the models presented. This book will be an essential resource for practitioners, academics, and regulators alike.' Robert Almgren, New York University and Quantitative Brokers

The widespread availability of high-quality, high-frequency data has revolutionised the study of financial markets. By describing not only asset prices, but also market participants' actions and interactions, this wealth of information offers a new window into the inner workings of the financial ecosystem. In this original text, the authors discuss empirical facts of financial markets and introduce a wide range of models, from the micro-scale mechanics of individual order arrivals to the emergent, macro-scale issues of market stability. Throughout this journey, data is king. All discussions are firmly rooted in the empirical behaviour of real stocks, and all models are calibrated and evaluated using recent data from Nasdaq. By confronting theory with empirical facts, this book for practitioners, researchers and advanced students provides a fresh, new, and often surprising perspective on topics as diverse as optimal trading, price impact, the fragile nature of liquidity, and even the reasons why people trade at all.

Preface
Part I. How and Why Do Prices Move?: 1. The ecology of financial markets
2. The statistics of price changes: an informal primer
Part II. Limit Order Books: Introduction: 3. Limit order books
4. Empirical properties of limit order books
Part III. Limit Order Books: Models: 5. Single-queue dynamics: simple models
6. Single-queue dynamics for large-tick stocks
7. Joint-queue dynamics for large-tick stocks
8. The Santa Fe model for limit order books
Part IV. Clustering and Correlations: 9. Time clustering and Hawkes processes
10. Long-range persistence of order flow
Part V. Price Impact: 11. The impact of market orders
12. The impact of metaorders
Part VI. Six Market Dynamics at the Micro-scale: 13. The propagator model
14. Generalised propagator models
Part VII. Adverse Selection and Liquidity Provision: 15. The Kyle model
16. The determinants of the bid–ask spread
17. The profitability of market making
Part VIII. Market Dynamics at the Meso-scale: 18. Latent liquidity and Walrasian auctions
19. Impact dynamics in a continuous-time double auction
20. The information content of prices
Part IX. Practical Consequences: 21. Optimal execution
22. Market fairness and stability
23. Appendices
Index.

Subject Areas: Economic systems & structures [KCS], Economic statistics [KCHS], Econometrics [KCH], Economic theory & philosophy [KCA], Economics [KC]