Market Microstructure: A Review of models

In recent decades, the development of capital market microstructure theory has led to a broad understanding of market performance, market organizational structure, transaction costs, and asset prices. Certainly one of the most important goals of microstructure modeling is to understand and describe the quality of markets. Define market microstructure as the process by which investors' latent demands are ultimately translated into prices and volumes. Define market microstructure as the study of trading mechanisms and regulations used to accomplish a trade. definition of market microstructure which is the study of the intermediation and the institutions of exchange. The main purpose of this article is to review the most important microstructure models of the market. Defines market microstructure as the study of the process and outcomes of exchanging assets under explicit trading rules. The main body of market microstructure theory consists of inventory-based models and information-based models. This article focuses on information-based models. Studying open microstructure models can help market participants understand the pricing process and the impact of information on pricing. The study of market microstructure theory and models leads to a deep understanding of the performance and organizational structure of the market, transaction costs, asset prices, and an understanding and description of market quality.

Keywords:

information asymmetry , Probability of informed trading , Market microstructure