Market Microstructure in Emerging and Developed Markets: Price Discovery, Information Flows, and Transaction Costs

Market Microstructure skillfully puts this discipline in perspective and examines how the working processes of markets impact transaction costs, prices, quotes, volume, and trading behavior. Along the way, it offers valuable insights on how specific features of the trading process like the existence of intermediaries or the environment in which trading takes place affect the price formation process.

Introduction:

The purpose of Market Microstructure in Emerging and Developed Markets is to provide a synthesis of the diverse strands of the theoretical, empirical, and experimental literature on market microstructure of financial markets in both emerging and developed markets. In simple terms, the book’s intent is to provide a better understanding of how markets work. The major thrust of market microstructure research examines the ways in which the working processes of a market affect determinants of transaction costs, prices, quotes, volume, and trading behavior. Thus, market microstructure has an important impact on a financial market’s efficiency and integrity.

Why examine both emerging and developed markets? Antoine van Agtmael, a World Bank economist, coined the term emerging markets in the 1980s when the international investment community increasingly recognized the distinctive characteristics and potential benefits of such markets. Despite the frequent usage of the term, no consensus exists on the theoretical or operational definition of what constitutes an emerging market. Definitions run the gamut from including extremely low-income economies to countries that are expected to experience high economic growth and industrialization. Still other definitions include all countries that are not considered developed.

Regardless of how broadly or narrowly emerging markets are defined, distinctive differences exist between emerging and developed markets. According to Bruner, Conroy, Estrada, Kritzman, and Li (2002), emerging markets differ from developed markets in areas such as accounting transparency, liquidity, corruption, volatility, governance, taxes, and transaction costs. These differences are likely to lead to dissimilarities in the market microstructure between emerging and developed markets. Thus, the book examines both types of markets.In summary, Market Microstructure in Emerging and Developing Markets offers a fresh look at this intriguing but complex subject. The book also contributes to the Robert W. Kolb Series in Finance not only because of the relevance and importance of this topic but also because of its complementary nature to other present and future books in the series especially relating to investments and financial markets.

Contents:

• Market Microstructure: An Overview
• Microstructure of Equity Markets
• Microstructure of the Euro-Area Government Bond Market
• Microstructure Developments in Derivative Markets
• The Microstructure of Currency Markets
• The Architecture of Securities Market Supervision
• Financial Market Contagion
• Market Architecture: A Conceptual Framework and Real-World Systems
• Designing a Trading Market
• Current Issues in Market Design
• Decimalization and Discreteness
• Dark Trading
• Determinants of Trading Costs
• Market Makers and Liquidity
• Liquidity beyond the Inside Spread: The Price Impact of Trading
• Price Discovery in International and Emerging Asset Markets
• Holding Back Volatility: Circuit Breakers, Price Limits, and Trading Halts
• Bid-Ask Spreads, Commissions, and Other Costs
• Pretrade and Posttrade Transparency
• Empirical and Experimental Research on Transparency and Disclosure
• Stock Market Efficiency and Market Microstructure in Emerging Markets
• Liquidity and Crises in Asian Equity Markets
• Trading Costs and Execution Strategies in Emerging Markets
• Intraday Price Behavior during Information Arrival in Emerging Markets
• Market Microstructure in African Equity Markets

Market Microstructure in Emerging and Developed Markets: Price Discovery, Information Flows, and Transaction Costs By H. Kent Baker, Halil Kiymaz pdf