Financial Trading and Investing

Financial Trading and Investing

3rd Edition - July 9, 2022

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  • Author: John Teall
  • Paperback ISBN: 9780323909556
  • eBook ISBN: 9780323984454

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Description

Financial Trading and Investing, Third Edition provides a useful introduction to trading and market microstructure for advanced undergraduate as well as master’s students. Without demanding a background in econometrics, the book explores alternative markets and highlights recent regulatory developments, implementations, institutions and debates. The text offers explanations of controversial trading tactics (and blunders) such as high-frequency trading, dark liquidity pools, fat fingers, insider trading and flash orders, emphasizing links between the history of financial regulation and events in financial markets. It includes coverage of valuation and hedging techniques, particularly with respect to fixed income and derivative securities. The text adds a chapter on financial utilities and institutions that provide support services to traders and updates regulatory matters. Combining theory and application, this book provides a practical beginner's introduction to today's investment tools and markets with a special emphasis on trading.

Key Features

  • Concentrates on trading, trading institutions, markets and the institutions that facilitate and regulate trading activities
  • Introduces foundational topics relating to trading and securities markets, including auctions, market microstructure, the roles of information and inventories, behavioral finance, market efficiency, risk, arbitrage, trading technology, trading regulation and ECNs
  • Covers market and technology advances and innovations, such as execution algo trading, Designated Market Makers (DMMs), Supplemental Liquidity Providers (SLPs), and the Super Display Book system (SDBK)
  • Includes improved pedagogical supplements, including end-of-chapter questions with detailed solutions at the end of the text, and useful appendices
  • Student resources available online: https://www.elsevier.com/books-and-journals/book-companion/9780323909556
  • Instructor resources available for request by qualified professors: https://educate.elsevier.com/9780323909556

Readership

Graduate students in Finance, Business, and Economics. Advanced UG students; Professionals working in finance, financial engineering, quantitative finance, and risk management

Table of Contents

  • Cover image
  • Title page
  • Table of Contents
  • Copyright
  • Dedication
  • Preface
  • Acknowledgments
  • Chapter 1. Introduction to Securities Trading and Markets
  • Abstract
  • 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
  • 1.8 Trading and the Broader Economy
  • References
  • 1.9 Exercises
  • Chapter 2. Securities Markets
  • Abstract
  • 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 Fixed-Income Securities and Money Markets
  • 2.7 Markets around the World
  • 2.8 Currency Exchange and Markets
  • 2.9 Cryptocurrency and Bitcoin Trading
  • 2.10 Commodities and Futures
  • 2.11 Swaps and Swap Execution Facilities
  • Additional Reading
  • References
  • 2.12 Exercises
  • Chapter 3. Financial Market Utilities and Securities Trading Support
  • Abstract
  • 3.1 Securities Trading Infrastructure
  • 3.2 Price and Quotation Systems
  • 3.3 Brokerage Operations
  • 3.4 Clearing and Settlement
  • 3.5 Other Financial Market Utilities and Functions
  • 3.6 Systemically Important Financial Market Utilities
  • Additional Reading
  • References
  • 3.7 Exercises
  • Chapter 4. Institutional Trading
  • Abstract
  • 4.1 Institutions and Market Impact
  • 4.2 Registered Investment Companies
  • 4.3 Unregistered Investment Companies
  • 4.4 Best Execution, Execution Costs, and Price Improvement
  • 4.5 Algorithmic Trading
  • 4.6 Dark Pools
  • 4.7 Stealth and Sunshine Trading
  • 4.8 High-Frequency Trading
  • 4.9 Flash Trading and Sponsored Access
  • Additional Reading
  • References
  • 4.10 Exercises
  • Chapter 5. Regulation of Trading and Securities Markets
  • Abstract
  • 5.1 Regulatory Approaches and the Regulatory Balance
  • 5.2 Pre-1930s Securities Regulation: The Background
  • 5.3 U.S. Securities Market Legislation: The Foundation
  • 5.4 Crises and Updating the Regulatory System
  • 5.5 Deregulation, Corporate Scandals, and the Financial Crisis of 2008
  • 5.6 Dodd–Frank
  • 5.7 Government Oversight of Self-Regulation
  • 5.8 Impact of Regulatory Activity
  • 5.9 Regulation: The International Arena
  • 5.10 Privatization of Regulation and Exchange Rules
  • Additional Reading
  • References
  • 5.11 Exercises
  • Chapter 6. Adverse Selection, Trading, and Liquidity
  • Abstract
  • 6.1 Market Microstructure, Liquidity, and Spreads
  • 6.2 Information and Trading
  • 6.3 Noise Traders
  • 6.4 Adverse Selection in Dealer Markets
  • 6.5 Adverse Selection, Dealer Inventories, and the Spread
  • 6.6 Risk, Risk Aversion, and Dealer Spreads
  • 6.7 Exercises
  • Appendix 6.A
  • 6.A.1 The Kyle Adverse Selection Model
  • The Informed Trader’s Problem: Profit Maximization
  • Dealer Price Setting
  • Informed Trader Demand and Dealer Price Adjustment
  • References
  • Chapter 7. Random Walks, Risk, and Arbitrage
  • Abstract
  • 7.1 Market Efficiency and Random Walks
  • 7.2 Risk
  • 7.3 Arbitrage
  • 7.4 Limits to Arbitrage
  • 7.5 Exercises
  • Appendix 7.A
  • 7.A.1 Return and Risk Spreadsheet Applications
  • 7.A.2 A Primer on Black-Scholes Option Pricing
  • 7.A.3 Estimating Implied Black-Scholes Variances
  • References
  • Chapter 8. Arbitrage and Hedging With Fixed Income Instruments and Currencies
  • Abstract
  • 8.1 Arbitrage With Riskless Bonds
  • 8.2 Fixed Income Hedging
  • 8.3 Fixed Income Portfolio Immunization
  • 8.4 Term Structure, Interest Rate Contracts, and Hedging
  • 8.5 Arbitrage With Currencies
  • 8.6 Arbitrage and Hedging With Currency Forward Contracts
  • 8.7 Hedging Exchange Exposure
  • Additional Reading
  • References
  • 8.8 Exercises
  • Chapter 9. Arbitrage and Hedging With Options
  • Abstract
  • 9.1 Derivative Securities Markets and Hedging
  • 9.2 Put–Call Parity
  • 9.3 Options and Hedging in a Binomial Environment
  • 9.4 The Greeks and Hedging in a Black-Scholes Environment
  • 9.5 Exchange Options
  • 9.6 Hedging Exchange Exposure With Currency Options
  • 9.7 Exercises
  • Appendix 9.A
  • 9.A.1 The Binomial Model: Additional Considerations
  • 9.A.2 Deriving the Black-Scholes Model
  • References
  • Chapter 10. Evaluating Trading Strategies and Performance
  • Abstract
  • 10.1 Evaluating Investment Portfolio Performance
  • 10.2 Market Timing Versus Selection
  • 10.3 Trade Evaluation and Volume-Weighted Average Price
  • 10.4 Implementation Shortfall
  • 10.5 Value at Risk
  • Additional Reading
  • References
  • 10.6 Exercises
  • Chapter 11. The Mind of the Investor
  • Abstract
  • 11.1 Rational Investor Paradigms
  • 11.2 Prospect Theory
  • 11.3 Behavioral Finance
  • 11.4 Body and Mind of the Trader
  • 11.5 Neurofinance: Getting Into the Investor’s Head
  • 11.6 The Consensus Opinion: Stupid Investors, Smart Markets?
  • Additional Reading
  • References
  • 11.7 Exercises
  • Chapter 12. Market Efficiency
  • Abstract
  • 12.1 Introduction to Market Efficiency
  • 12.2 Weak Form Efficiency and Technical Analysis
  • 12.3 Testing Momentum and Mean Reversion Strategies
  • 12.4 Semistrong Form Efficiency
  • 12.5 The Event Study Methodology
  • 12.6 Strong Form Efficiency and Insider Trading
  • 12.7 Anomalous Efficiency and Prediction Markets
  • 12.8 Epilogue
  • Additional Reading
  • References
  • 12.9 Exercises
  • Chapter 13. Trading Gone Awry
  • Abstract
  • 13.1 The Dark Side of Finance
  • 13.2 Illegal Insider Trading
  • 13.3 Front Running and Late Trading
  • 13.4 Bluffing and Market Manipulation
  • 13.5 Payment for Order Flow
  • 13.6 Fat Fingers, Hot Potatoes, and Technical Glitches
  • 13.7 Rogue Trading and Rogue Traders
  • 13.8 Hiding Trading Losses with Ponzi Schemes
  • Additional Reading
  • References
  • 13.9 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
  • 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
  • Chapter 13
  • Glossary
  • Index

Product details

  • No. of pages: 576
  • Language: English
  • Copyright: © Academic Press 2022
  • Published: July 9, 2022
  • Imprint: Academic Press
  • Paperback ISBN: 9780323909556
  • eBook ISBN: 9780323984454

About the Author

John Teall

John Teall is a visiting professor at LUISS Business School in Rome, Italy. He is a former member of the American Stock Exchange and has served as a consultant to Deutsche Bank, Goldman Sachs, and other financial institutions.

Affiliations and Expertise

Johns Hopkins University

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