VPIN and the Flash Crash
AbstractEasley, Lopez de Prado and O'Hara introduce VPIN as a real-time indicator of order flow toxicity. They find it useful for monitoring order fl ow imbalances and signaling impending market turmoil, exemplified by the ash crash. They also deem VPIN a good forecaster of short-term volatility. In contrast, we find that VPIN is a poor volatility predictor, that it only reached an all-time high following the ash crash, and that its predictive content stems from a mechanical relation with trading intensity. Generally, we caution against adoption of any specific market stress metric until it is compared thoroughly to suitable benchmarks.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2011-50.
Date of creation: 30 Oct 2011
Date of revision:
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Web page: http://www.econ.au.dk/afn/
VPIN; PIN; High-Frequency Trading; Order Flow Toxicity; Order Imbalance; Flash Crash; VIX; Volatility Forecasting.;
Other versions of this item:
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
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- David Easley & Marcos M. López de Prado & Maureen O'Hara, 2012. "Flow Toxicity and Liquidity in a High-frequency World," Review of Financial Studies, Society for Financial Studies, vol. 25(5), pages 1457-1493.
- Torben G. Andersen & Oleg Bondarenko, 2013.
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CREATES Research Papers
2013-42, School of Economics and Management, University of Aarhus.
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