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VPIN and the Flash Crash

Torben Andersen () and Oleg Bondarenko ()
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Oleg Bondarenko: Department of Finance (MC 168), University of Illinois at Chicago, Postal: 601 S. Morgan St., Chicago, IL 60607, USA

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: 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.

Keywords: VPIN; PIN; High-Frequency Trading; Order Flow Toxicity; Order Imbalance; Flash Crash; VIX; Volatility Forecasting. (search for similar items in EconPapers)
JEL-codes: C58 G01 G12 G14 G17 (search for similar items in EconPapers)
Pages: 38
Date: 2011-10-30
New Economics Papers: this item is included in nep-mst
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https://repec.econ.au.dk/repec/creates/rp/11/rp11_50.pdf (application/pdf)

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Journal Article: VPIN and the flash crash (2014) Downloads
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