Abstract
AbstractIn this paper, we explore the order book dynamics on the Liv-ex fine wine exchange. More specifically, by using the order book data, we examine new buy and sell order submissions and cancellations and various factors that may have an effect on the intensity of the trade process on both sides of the market. Our findings indicate the existence of significant relationships between the expected number of bids, offers, or order withdrawals and wine producers, contract type, bottle format, case size, weekday, and age. In particular, the wine age positively affects the buy and sell order submissions, but only up to a certain point, after which the number of orders starts to decrease. (JEL Classifications: D40, G12, G14, L66)
Highlights
Electronic, continuous, order-driven markets have recently dominated the trading of assets on almost all important exchanges in the world. This type of market structure is characterized by trading rules that allow traders to track order flows and extract vital information from buy and sell orders submitted in the order book
We use Poisson regression to examine the relationship between the number of occurrences of different order book related events and various wine or trade characteristics that may have an effect on the bid and offer order happen on Liv-ex if the offer is below the bid
The estimated Poisson regression coefficients for the models of the effects of particular covariates on order book related events are presented in Table 1 and Table 2
Summary
Electronic, continuous, order-driven markets have recently dominated the trading of assets on almost all important exchanges in the world This type of market structure is characterized by trading rules that allow traders to track order flows and extract vital information from buy and sell orders submitted in the order book. Order book dynamics isan important determinant of market quality, and information about order submissions and cancellations in the order book can help us to understand the trader behavior and asset price formation. We investigate new buy and sell order submissions or cancellations in the Liv-ex order book and various factors that may have an effect on their intensity, measured by the number of bids and offers added to or withdrawn from the order book In such a way, new insights on fine wine trading may be gained. By distinguishing between different types of orders placed in the order book and between different trade characteristics (producer, contract type, case size, day of trading, bottle size, order size, wine age), we provide a more detailed picture of liquidity formation and trader behavior in the fine wine market
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