Trading, Liquidity, and Pricing in Securities Markets

FIE447 Trading, Liquidity, and Pricing in Securities Markets

  • Topics


    • Market efficiency and arbitrage
    • Trading mechanics and market structure
    • Defining, measuring, and estimating market liquidity
    • Trading and price discovery
    • Key players of the trading industry
    • Market design and regulation
    • Market transparency
    • The effect of liquidity, and price discovery on corporate finance policies

  • Learning outcome

    Learning outcome

    This course deals with how financial securities are traded, and how the structure of markets affects price formation, market liquidity, and asset allocation. In most finance courses, the mechanism behind the determination of prices is treated as a black box. In this course the box will be opened and we will study how actual market trading mechanisms and market participants affect pricing, liquidity, and asset allocation.

    We will study how trading frictions generate deviations of assets prices from their fundamental value and how these deviations are exploited through arbitrage; how prices are formed when markets are designed as limit order markets, dealer markets, dark pools and call auctions; how market liquidity is defined and how it is affected by market design, market participants, and how market liquidity in turn affects the decisions of the various market participants.

    Upon completion of this course, the students shall understand:

    • how market efficiency and arbitrage affect price discovery
    • how real world markets operate in the formation of market prices and price discovery
    • the difference between electronic limit order markets, dark pools, over-the-counter markets, and call auctions
    • market liquidity and how market liquidity is related to trading costs, and the difference between market liquidity and funding liquidity
    • how asset allocation is affected by trading costs and illiquidity, and how to account for illiquidity and transactions costs in portfolio management

  • Teaching


    The topics will be taught through lectures. Student participation is strongly encouraged.

  • Required prerequisites

    Required prerequisites

    Students are expected to have basic knowledge in finance as covered in courses such as FIE 400 Investments and FIE 402 Corporate Finance.

  • Requirements for course approval

    Requirements for course approval

    Students must get approved three out of three assignments

  • Assessment


    Written School exam (4 hours): 100%

  • Grading Scale

    Grading Scale

    Grading scale A - F

  • Computer tools

    Computer tools


  • Semester



  • Literature


    Market Liquidity. Theory, Evidence, and Policy by Thierry Foucault, Marco Pagano, and Ailsa Röell, Oxford University Press

    Additional readings may be assigned


ECTS Credits
Teaching language

Course responsible

Tore Leite, Department of Finance