VPIN and the Flash Crash
Easley, 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.
|Date of creation:||30 Oct 2011|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.au.dk/afn/|
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