Market-microstructure

This book provides concepts of intermediary firm and its functions in economy. The author starts by introducing Princing Mechanism and Adjustment (with uncertainry) in the first part. He give use a fancy applications in Economic Theory (Gen. Eqlm.) and competition among intermediaries in part II. Part III, he seperates the concepts of matching and searching. Part IV, Adverse Selection and Moral Harzard problems are also given. Part V is Transaction Cost. Part VI is Agency Theory. All are presented with intermediary concepts. The author gives ideas about intermediary in many aspects by collecting lots of papers and conceptualization of thems. The concepts can be used in financial and physical markets. It is indispensable for students who want to study Market Microstructure, Intermediary and E-commerce Concept.

Intermediaries play a significant role in market economies. The author identifies that role and develops a conceptual framework of the major functions of intermediaries in markets. The main idea, which goes beyond the classical dichotomy of firms vs. markets, is simple but powerful: firms create and manage markets. I think it is a book that should be read by everyone interested in understanding how markets work.

I have so far read half of this 600+ page book. (perhaps I'll give an update on the second half later, but couldn't wait to give my opinion now.) Larry Harris gives painstakingly clear and precise definitions of the language of trading. They ring very true. The first 100 pages is almost all definitions. He continues with an explain-by-defining approach throughout the book. He also includes interesting examples. Next he classifies traders by type based on their motivations.

While his classifications are helpful in many ways to understand trading, I believe that he put in a serious bias against the more open markets produced by decimalization. I am particularly concerned about his criticism of those front runners who, based only on their observation of trading patterns, trade ahead of value investors (using his terms); he says those front runners reduce the incentives to the value investors to correct prices.

Later in the book much of Harris' discussion of dealers assumes that bid and ask prices show fairly precise fundamental values. Yet he ignores that there so few value investors that, as Harris points out, Fischer Black said market prices are informative when they are between 1/2 and 2 times the true value (not everyone agrees). Actually those front runners amplify the information, allowing the value investors to have a greater corrective impact on prices over a wider range of securities, given their limited capital.

Overall Trading & Exchanges is a good and dense read, suited to an eager beginner or someone who wants a very clear review of the theory and practice of trading. I look forward to the rest of the book.

I have been trading for 8 years. 6 years prop trading, I now run a hedge fund. We make about 10,000 trades/day. I wish I had read this book years ago. I've had to pay Mr. Market a large sum to learn many of these lessons. Larry Harris has written what I consider to be the best book in the field of trading. He covers nearly all topics, from structural & regulatory issues, to descriptions of the players; costs to performance evaluation. Presentation is excellent - the numerous sidebars, tables & graphs serve to illustrate the text. My only complaint is that the book does not take the quantitative side far enough. I recommend a technical appendix plus specific references (perhaps annotating the excellent bibliography) for the mathematically inclined reader.

If you are interested in trading, or curious about the markets, buy and read this book!

If you don't understand how the markets work, want to learn more, and are willing to invest an immodest amount of time and money, this is a book you must read.

Larry Harris is a brilliant contributor to the understanding of markets, and is currently Chief Economist of the Securities and Exchange Commission. This book however, is written as a textbook for the introductory markets class he taught at USC for many years.

Larry's book pulls back the curtains on the mystery and mumbo-jumbo of what happens when investors buy and sell securities. The book is lightly written, with many anecdotes and amusing sidebars, yet presents the latest and best knowledge on how (and why) markets work.

The book is meant to describe market microstructure. My discovery is that one needs to know a lot about the subject matter to get anything out of it. I had the feeling of reading footnotes without seeing the text! It quotes authors and papers without the slightest indication as to what they are about. I do not recommend it. But there are other books covering the subject. Campbell, Lo and McKinlay (The Econometrics of Financial Markets) proovides in one chapter more information that this book. FInally, there is a French book on the topic that is excellent; it would call for a translation (the authors are Biais,Foucault & Hillion).

This is the quintessential book on the theory of the microstructure of financial markets. Although it is not meant for people with just a casual interest in the area, it is nevertheless an indispensable book for academics and for people serious about the topic.

It is also far more readable and understandable than Daniel Spurber's book which provides little of the working intuition of O'Hara. In fact Spurber is meant more for the theoretical economist with an interest in market microstructure, whereas O'Hara appeals to a broader audience in the field of finance.

This book does not need praise. It is widely considered the best introduction to the academic work in market microstructure. The only reason I've listed this review is to counter the unfortunate review already listed. This book is perfect for the researcher or PhD student interested in the issues addressed in market microstructure. Although the book is not written for the average mba student, a careful read would benefit anyone interested in the structure of markets.