Market Microstructure: A Survey

64 Pages Posted: 28 Mar 2000  

Ananth Madhavan

BlackRock, Inc.

Multiple version iconThere are 2 versions of this paper

Date Written: March 16, 2000

Abstract

Market microstructure is the area of finance that studies the process by which investors' latent demands are ultimately translated into prices and volumes. This paper provides a detailed review of the theoretical, empirical and experimental literature on market microstructure with a special focus on informational issues relating to: (1) Price formation and price discovery, including both static issues such as the determinants of trading costs and dynamic issues such the process by which prices come to impound information over time, (2) Market structure and design, including the relation between price formation and trading protocols, (3) Information and disclosure, especially the topic of market transparency, i.e., the ability of market participants to observe information about the trading process, and (4) Interface of market microstructure with other areas of finance including asset pricing, international finance, and corporate finance. I discuss the implications of recent research for investors, policy makers, and regulators, and identify some directions for future research.

Keywords: market microstructure, liquidity, security prices, transparency, market design

JEL Classification: G10, G34

Suggested Citation

Madhavan, Ananth, Market Microstructure: A Survey (March 16, 2000). Available at SSRN: https://ssrn.com/abstract=218180 or http://dx.doi.org/10.2139/ssrn.218180

Ananth Madhavan (Contact Author)

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

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