The Microstructure of Financial Markets
Frank de Jong  - Universiteit van Tilburg, Barbara Rindi - Università Commerciale Luigi Bocconi, Milan
Published May 2009




The analysis of the microstructure of financial markets has been one of the most important areas of research in finance and has allowed scholars and practitioners alike to have a much more sophisticated understanding of the dynamics of price formation in financial markets. Frank de Jong and Barbara Rindi provide an integrated graduate level textbook treatment of the theory and empirics of the subject, starting with a detailed description of the trading systems on stock exchanges and other markets and then turning to economic theory and asset pricing models.

Special attention is paid to models explaining transaction costs, with a treatment of the measurement of these costs and the implications for the return on investment. The final chapters review recent developments in the academic literature. End-of-chapter exercises and downloadable data from the book’s companion website provide opportunities to revise and apply models developed in the text.

ContentsList of figures; List of tables; Preface; Introduction; 1. Institutions and market structure; 2. Financial market equilibrium; 3. Batch markets with strategic informed traders; 4. Dealer markets: information-based models; 5. Inventory models; 6. Empirical models of market microstructure; 7. Liquidity and asset pricing; 8. Models of the limit order book; 9. Price discovery; 10. Policy issues in financial market structure; Index.

Reviews"Thoughtful, clear and rigorous, this book offers an in-depth unified treatment of market microstructure, combining description of institutions with presentation of analytical models along with empirical methods and results. This comprehensive survey ranges from seminal contributions to latest research. It will be a reference not just for advanced graduate courses in finance and economics but also for scholars and industry practitioners. This is the book we have long needed in order to understand and master the advances in research and trading innovations that have taken place over the last thirty years." - Bruno Biais, Toulouse University

"Frank de Jong and Barbara Rindi present a clear and accessible discussion of market microstructure. They combine a careful explanation of institutional details together with a clear exposition of theoretical models in a manner that will prove very useful to both Ph.D. level students and MBA level students.

Their book is particularly timely because market microstructure, like options pricing, has rapidly moved from the research domain of professors into the real world, where competition among exchanges, measurement of transactions costs, and algorithmic trading all require combining the theory of market microstructure with an understanding of how it works in practice."- Albert S Kyle, Smith Chair Professor of Finance, Robert H Smith School of Business, University of Maryland