Peter Lerner

Microstructure and Noise in Financial Markets: Rigorous and Not-so Rigorous Results in Market Microstructure Peter Lerner

Market microstructure is a discipline studying the features of the financial markets, which are the result of deliberate design as well as economic laws and technological infrastructure. It has recently increased in importance because of the propagation of programmatic trading and the proliferation of ever more sophisticated financial fraud. My book deals with the subject of microstructure of financial markets not as a collection of miscellaneous results but as a connection between few underlying ideas. These ideas concern the formation of the bid-ask spread as a result of information asymmetry, order processing and inventory maintenance and consequent bid-ask bounce, the influence of frictions on volatility and the relationship between natural (continuous) and transaction (discrete) time. Empirical examples involve event studies of the developed (NYSE, Nasdaq) as well as emerging markets such as Russian sovereign bond market in the late 90s and Venezuelan short-term debt.