Trading Activity and Liquidity Supply in a Pure Limit Order Book Market. An Empirical Analysis Using a Multivariate Count Data Model

CORE Discussion Paper No. 2004/58

EFA 2005 Moscow Meetings Paper

45 Pages Posted: 6 Mar 2005

See all articles by Joachim Grammig

Joachim Grammig

Eberhard Karls Universitaet Tübingen; Centre for Financial Research (CfR); Center for Financial Studies (CfS)

Andréas Heinen

University of Cergy-Pontoise - THEMA

Erick W. Rengifo

Fordham University - Department of Economics - Center for International Policy Studies (CIPS)

Date Written: August 2004

Abstract

In this paper we perform an empirical analysis of the trading process in a pure limit order book market, the Xetra system which operates at various European exchanges. We study how liquidity supply and demand as well as price volatility affect future trading activity and market resiliency, and discuss the results in the light of predictions implied by theoretical models of financial market microstructure. Parameter estimation and hypotheses testing is conducted using a new econometric methodology designed for the analysis of multivariate count processes.

Keywords: Market microstructure, Liquidity, Trading activity, Multivariate count process

JEL Classification: C32, C35, G10

Suggested Citation

Grammig, Joachim and Heinen, Andréas and Rengifo, Erick W., Trading Activity and Liquidity Supply in a Pure Limit Order Book Market. An Empirical Analysis Using a Multivariate Count Data Model (August 2004). ; EFA 2005 Moscow Meetings Paper. Available at SSRN: https://ssrn.com/abstract=676567 or http://dx.doi.org/10.2139/ssrn.676567

Joachim Grammig

Eberhard Karls Universitaet Tübingen ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

HOME PAGE: http://www.uni-tuebingen.de/uni/wwo/Grammig/grammigeng.html

Centre for Financial Research (CfR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Center for Financial Studies (CfS) ( email )

Taunusanlage 6
Frankfurt/Germany, D-60329
Germany

Andréas Heinen (Contact Author)

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France

Erick W. Rengifo (Contact Author)

Fordham University - Department of Economics - Center for International Policy Studies (CIPS) ( email )

United States
0017188174061 (Phone)
0017188173518 (Fax)

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