Dr. P.V. Viswanath
FIN : American Capital Markets Summer 2005
Classes will meet in room W524 on the New York campus
This course could concisely be described as dealing with the macrostructure (the first half) and the microstructure (the second half) of American capital markets. The first part starts with a description of the primary market, the process by which new securities are sold to the investing public. The characteristics of the major categories of publicly traded securities are discussed with an emphasis on the tradeoff between a security's risk and its return. A well functioning capital market requires a transparent, orderly system to handle trades between investors in these publicly held securities. The second half of the course compares and contrasts various trading systems put in place by major US exchanges. The course culminates with a discussion of the globalization of trading mechanisms.
Market Microstructure (Prof. P.V. Viswanath)
Main Text: Trading and Exchanges, by Larry Harris, Oxford University
When you have completed this course successfully, you will be familiar with
Market Macrostructure (Prof. Padmaja Kadiyala):
Market Microstructure (Prof. P.V. Viswanath):
Time permitting, the second half of the course will consist of the following topics:
(1st half): Overview of the course; Introduction to Corporate Finance
(1st half): Why underpricing, international IPOsCharacteristics of financial
(1st half): Characteristics of financial assets
(1st half): Risk and Return – history, single security
(1st half): Beta risk, CAPM
Review and final exam for first half of course
In this class meeting, the students will be introduced by means of a few examples, to the important elements of how trades get made; to the different players in the trading industry.
I Trading Stories (Chapter 2 of Trading and Exchanges by Larry
Harris; future references to Chapters are also from this book)
II The Trading Industry (Chapter 3)
In this class meeting, we will go on to a discussion of the different securities markets that operate in the US and discuss the variety of order types that an investor can use to accomplish a purchase or a sale of securities.
III Where are the Trading Markets (Chapter 3, section 4)
IV Orders and Order Properties (Chapter 4)
In this class meeting, students will be exposed to different kinds of market structures.
V Market Structures (Chapter 5)
In this class meeting, we will start a discussion of one of the important market types -- an order driven market. We will also conduct a simulation of such a market.
VI Order Driven Markets (Chapter 6)
a. Oral Auctions (Chapter 6.1)
Talk by Mr. Fred S. Cohen, Senior Municipal Trader, Bernstein Investment Research and Management.
In this class meeting, we will go on to discuss the second important type of market structure, a quote driven market, otherwise known as a dealer market. We will discuss how dealers make decisions regarding inventory and limit order placement in these markets, and we will look at how these decisions result in an equilibrium bid-ask spread. We will end by engaging in a simulation of such a market.
VII Dealers and Dealer Markets (Chapter 13)
VIII Bid-Ask Spreads (Chapter 14)
Head Trader Simulation
In this class meeting, we will look at the societal functions of markets and look, in particular, at their informational role.
IX Good Markets (Chapter 9)
X Informed Traders and Market Efficiency (Chapter 10)
Check your e-mail and the FIN American Capital Markets website on a regular basis, particularly for the second half of the course. This will enable you to get the maximum from the course. The course instructors are available for consultation by e-mail at firstname.lastname@example.org and email@example.com. I check my e-mail practically every day, and, in most cases, you should get a speedy response to any questions.
We will also be using Blackboard as a gateway for some aspects of the course. Please log in to Blackboard at the earliest opportunity. Blackboard login procedures can be found on the appropriate Blackboard site.
Class attendance is mandatory and is highly recommended. This is for two reasons: one, I believe that you will understand the material much better if you attend the class sessions; two, modifications to the class schedule will be announced in class and/or on the BlackBoard website. Also, on occasion, I conduct classroom exercises, give short quizzes, or assign additional work. If you miss a class session during which we have such a classroom exercise, or additional work is assigned, your grade will be adversely affected for this reason as well. (Of course, it goes without saying that missing quizzes will affect your grade adversely.) In any case, you should consult fellow students on what was done during the class time that you missed, and collect handouts for that day's session. You should also bring a calculator to all class meetings.
For the second half of the course, in particular, you are required to read the Wall Street Journal. Some exam questions will be based on current newspaper and magazine articles that are related to course material. Hence you should cultivate and improve your ability to read newspaper articles critically.
There are two other reasons why you should try to attend as regularly as possible. One, classroom participation will help your grade. By participation, I mean answering questions and making intelligent comments. Two, we will sometime do learning exercises in class; doing them can help you substantially in understanding the material. I often also give credit for participation in these classroom exercises.
Assignments are required to be handed in. Please see Course Timetable.
Any student taking this course is presumed to agree to abide by standards on academic integrity. If any student is caught cheating or plagiarising or otherwise doing anything contrary to academic integrity, s/he can get a failing grade for the entire course.
See schedule of classes, above, as well on the Class Schedule page.
I will alert you to interesting media articles that show up on the Wall Street Journal. There are several reasons why you should look regularly at these and other articles.