The role of HFTs in order flow toxicity and stock price variance, and predicting changes in HFTs’ liquidity provisions

Bonnie F. Van Ness (), Robert A. Van Ness () and Serhat Yildiz ()
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Robert A. Van Ness: The University of Mississippi
Serhat Yildiz: The University of Mississippi

Journal of Economics and Finance, 2017, vol. 41, issue 4, No 6, 739-762

Abstract: Abstract This study examines relations between high frequency trading, order flow toxicity, stock price volatility during normal and high order flow toxicity periods, and the predictability of changes in high frequency traders’ liquidity supply and demand. By employing volume-synchronized probability of informed trading (VPIN), a flow toxicity metric, we find a negative relation between high frequency trading and order flow toxicity. Our results also show that VPIN can be a good predictor of high frequency traders’ liquidity supply and demand changes. Finally, we find that high frequency traders’ impact on stock price variance is not uniform and change with order flow toxicity levels and stock volume.

Keywords: HFT; VPIN; Nasdaq (search for similar items in EconPapers)
JEL-codes: G10 G14 G20 G23 G28 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s12197-016-9374-6

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