IDEAS home Printed from https://ideas.repec.org/h/eee/finchp/2-17.html
   My bibliography  Save this book chapter

Microstructure and asset pricing

In: Handbook of the Economics of Finance

Author

Listed:
  • Easley, David
  • O'Hara, Maureen

Abstract

Market microstructure and asset pricing both consider the behavior and formation of prices in asset markets. Yet neither literature explicitly recognizes the importance and role of the factors so crucial to the other approach. This survey seeks to join the two literatures by surveying the work linking microstructure factors to asset price dynamics. In the short run, these dynamics involve issues such as the auto-correlation and cross-correlation structure of stocks, and our survey will examine the literature relating these correlation structures to microstructure factors such as non-synchronous trading and dealer behavior. In the longer run, issues such as liquidity and the relation of private information to asset price dynamics are important. We survey the theoretical work linking microstructure factors to long-run returns, and we consider why stock prices might be expected to reflect premia related to liquidity or informational asymmetries. We also survey the empirical literature testing these relationships. We then discuss what issues remain contentious, and we provide some guidance for future research. We hope to show in this survey that asset-pricing dynamics may be better understood by recognizing the role played by microstructure factors, and that microstructure research can be enhanced by a greater understanding of its linkages with fundamental economic variables.

Suggested Citation

  • Easley, David & O'Hara, Maureen, 2003. "Microstructure and asset pricing," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 17, pages 1021-1051, Elsevier.
    • Handle: RePEc:eee:finchp:2-17
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/B7GX8-4DXJCWN-D/2/673cc23702077fb222a964b0835a280f
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Prince Hikouatcha & Arsène Aurelien Njamen Kengdo & Hans Patrick Bidias Menik & Pierre Ghislain Tchoffo Tioyem & Tii Njivukuh Nchofoung, 2023. "Microstructure and asset pricing: An insight on African frontier stock markets," Bulletin of Economic Research, Wiley Blackwell, vol. 75(4), pages 944-987, October.
    2. Davide Lauria & W. Brent Lindquist & Svetlozar T. Rachev & Yuan Hu, 2023. "Unifying Market Microstructure and Dynamic Asset Pricing," Papers 2304.02356, arXiv.org, revised Feb 2024.
    3. Gregory Bauer & Clara Vega, 2004. "The Monetary Origins of Asymmetric Information in International Equity Markets," Staff Working Papers 04-47, Bank of Canada.
    4. Loderer, Claudio & Roth, Lukas, 2005. "The pricing discount for limited liquidity: evidence from SWX Swiss Exchange and the Nasdaq," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 239-268, March.
    5. James Dow & Gary Gorton, 2006. "Noise Traders," NBER Working Papers 12256, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finchp:2-17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.