Abstract
The mechanism of order book dynamic is studied by using ultra high frequency data in terms of three market events: injection, cancellation, and transaction. We analyzed the empirical decision-making process of market participants focusing on the event rates conditional on the depth from the mid-price. We observed that both injection and cancellation rates depend on the market depth with exponential decay near the mid-price, which is different from the conventional assumption of the homogeneous Poisson process for the order book formation. We also found scaling relations between injection, cancellation, transaction, and diffusion of the mid-price, highlighting the correlation between these market events. We finally discussed a theoretical model based on our findings to reproduce the empirical order-book profiles.
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