The Microstructure of Stock Markets

62 Pages Posted: 30 Apr 2002

See all articles by Bruno Biais

Bruno Biais

Centre for Economic Policy Research (CEPR)

Lawrence R. Glosten

Columbia Business School - Finance and Economics

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business

Date Written: March 2002

Abstract

We survey the literature analysing the price formation and trading process, and the consequences of market organization for price discovery and welfare. We develop a united perspective on theoretical, empirical and experimental approaches. We discuss the evidence on transaction costs and the price impact of trades and its analyses in terms of adverse selection, inventory costs and market power. We review the extent to which the associated frictions can be mitigated by such features of market design as the degree of transparency, the use of call auctions, the discreteness of the pricing grid and the regulation of competition between liquidity suppliers or exchanges.

Keywords: Market microstructure, liquidity, bid-ask spread, market design, transactions costs

JEL Classification: D82, G10, G14, G20

Suggested Citation

Biais, Bruno and Glosten, Lawrence R. and Spatt, Chester S., The Microstructure of Stock Markets (March 2002). Available at SSRN: https://ssrn.com/abstract=310105

Bruno Biais (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Lawrence R. Glosten

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-8834 (Phone)
412-268-6689 (Fax)

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