Market microstructure: A survey

Abstract

Market microstructure studies the process by which investors' latent demands are ultimately translated into prices and volumes. This paper reviews the theoretical, empirical and experimental literature on market microstructure relating to: (1)price formation, including the dynamic process by which prices come to impound information, (2)market structure and design, including the relation between price formation and trading protocols, (3)Transparency, the ability of market participants to observe information about the trading process, and (4)Applications to other areas of finance including asset pricing, international finance, and corporate finance. © 2000 Elsevier Science B.V.