Dedication
Preface
Acknowledgements
Chapter 1. Introduction to Securities Trading and Markets
1.1 Trades, Traders, Securities, and Markets
1.2 Securities Trading
1.3 Bargaining
1.4 Auctions
1.5 Introduction to Market Microstructure
1.6 Orders, Liquidity, and Depth
1.7 Day Trading
Additional Reading
References
1.8 Exercises
Chapter 2. Financial Markets, Trading Processes, and Instruments
2.1 Exchanges and Floor Markets
2.2 The Way It Was
2.3 Over-the-Counter Markets and Alternative Trading Systems
2.4 The Decline of Brick and Mortar
2.5 Crossing Networks and Upstairs Markets
2.6 Quotation, Intermarket, and Clearing Systems
2.7 Brokerage Operations
2.8 Fixed-Income Securities and Money Markets
2.9 Markets around the World
2.10 Currency Exchange and Markets
Additional Reading
References
2.11 Exercises
Chapter 3. Institutional Trading
3.1 Institutions and Market Impact
3.2 Registered Investment Companies
3.3 Unregistered Investment Companies
3.4 Best Execution, Execution Costs, And Price Improvement
3.5 Algorithmic Trading
3.6 Dark Pools
3.7 Stealth And Sunshine Trading
3.8 High-Frequency Trading
3.9 Flash Trading And Sponsored Access
Additional Reading
References
3.10 Exercises
Chapter 4. Regulation of Trading and Securities Markets
4.1 Background and Early Regulation
4.2 U.S. Securities Market Legislation: The Foundation
4.3 Crises and Updating the Regulatory System
4.4 Deregulation, Corporate Scandals, and the Financial Crisis of 2008
4.5 Dodd-Frank
4.6 Government Oversight of Self-Regulation: The Securities and Exchange Commission and Commodity Futures Trading Commission
4.7 Impact of Regulatory Activity
4.8 Regulation: The International Arena
4.9 Privatization of Regulation and Exchange Rules
Additional Reading
References
4.10 Exercises
Chapter 5. Adverse Selection, Trading, and Spreads
5.1 Information and Trading
5.2 Noise Traders
5.3 Adverse Selection in Dealer Markets
5.4 Adverse Selection and the Spread
Additional Reading
References
5.5 Exercises
Chapter 6. Random Walks, Risk, and Arbitrage
6.1 Market Efficiency and Random Walks
6.2 Risk
6.3 Arbitrage
6.4 Limits to Arbitrage
Additional Reading
References
6.5 Exercises
Appendix 6.A
Chapter 7. Arbitrage and Hedging with Fixed Income Instruments and Currencies
7.1 Arbitrage with Riskless Bonds
7.2 Fixed Income Hedging
7.3 Fixed Income Portfolio Immunization
7.4 Term Structure, Interest Rate Contracts, and Hedging
7.5 Arbitrage with Currencies
7.6 Arbitrage and Hedging with Currency Forward Contracts
7.7 Hedging Exchange Exposure
Additional Reading
References
7.8 Exercises
Chapter 8. Arbitrage and Hedging with Options
8.1 Derivative Securities Markets and Hedging
8.2 Put–Call Parity
8.3 Options and Hedging in a Binomial Environment
8.4 The Greeks and Hedging in a Black-Scholes Environment
8.5 Exchange Options
8.6 Hedging Exchange Exposure with Currency Options
Additional Reading
References
8.7 Exercises
Appendix 8.A
Chapter 9. Evaluating Trading Strategies and Performance
9.1 Evaluating Investment Portfolio Performance
9.2 Market Timing Versus Selection
9.3 Trade Evaluation and Volume-Weighted Average Price
9.4 Implementation Shortfall
9.5 Value at Risk
Additional Reading
References
9.6 Exercises
Chapter 10. The Mind of the Investor
10.1 Rational Investor Paradigms
10.2 Prospect Theory
10.3 Behavioral Finance
10.4 Neurofinance: Getting into the Investor’s Head
10.5 The Consensus Opinion: Stupid Investors, Smart Markets?
Additional Reading
References
10.6 Exercises
Chapter 11. Market Efficiency
11.1 Introduction to Market Efficiency
11.2 Weak form Efficiency
11.3 Testing Momentum and Mean Reversion Strategies
11.4 Semistrong form Efficiency
11.5 The Event Study Methodology
11.6 Strong form Efficiency and Insider Trading
11.7 Anomalous Efficiency and Prediction Markets
11.8 Epilogue
Additional Reading
References
11.9 Exercises
Chapter 12. Trading Gone Awry
12.1 Illegal Insider Trading
12.2 Front Running and Late Trading
12.3 Bluffing, Spoofing, and Market Manipulation
12.4 Payment for Order Flow
12.5 Fat Fingers, Hot Potatoes, and Technical Glitches
12.6 Rogue Trading and Rogue Traders
12.7 Trading and Ponzi Schemes
Additional Reading
References
12.8 Exercises
Mathematics Appendix
A.1 A Brief Overview of Elementary Statistics
A.2 Essentials of Matrices and Matrix Arithmetic
A.3 Derivatives of Polynomials
A.4 Reference Tables
Glossary
End-of-Chapter Exercise Solutions
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Index
