Informed Trading, Flow Toxicity and the Impact on Intraday Trading Factors

Wei, Wang Chun; Gerace, Dionigi; Frino, Alex

doi:10.14453/aabfj.v7i2.2

Cited by 11 publications

(4 citation statements)

References 17 publications

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“…2 The theoretical development on concepts from PIN (probability of informed trading) to intraday VPIN and the computational advantage of VPIN over PIN in the high frequency world may be found in Easley et al (2012) and Abad and Yague (2012). 3 For other empirical works related to using VPIN refer to Wei, Gerace, and Frino (2013) and others. 4 See Easley et al (2012).…”

Section: Introductionmentioning

confidence: 99%

VPIN, Jump Dynamics and Inventory Announcements in Energy Futures Markets

Bjursell¹,

Wang

Zheng

2017

Journal of Futures Markets

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The Volume‐Synchronized Probability of Informed Trading (VPIN) metric is proposed by Easley et al. (2011, 2012) (Journal of Portfolio Management, 37:118–128; Review of Financial Studies, 25:1457–1493) as a real‐time measure of order flow toxicity in an electronic trading market. This study examines the performance of VPIN around inventory announcements and price jumps in crude oil and natural gas futures markets with a sample period from January 2009 to May 2015. We obtain several interesting results: (i) VPIN increases significantly around inventory announcements with price jumps as well as at jumps not associated with any scheduled announcements. (ii) VPIN does not peak prior to the events but shortly after. (iii) A minor variation of VPIN based on exponential smoothing significantly improves the early warning signal property of VPIN, and this estimate of toxicity returns faster to the pre‐event level. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:542–577, 2017

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Section: Introductionmentioning

confidence: 99%

VPIN, Jump Dynamics and Inventory Announcements in Energy Futures Markets

Bjursell¹,

Wang

Zheng

2017

Journal of Futures Markets

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“…Thus, the probability of having privileged transactions is, in theory, lower for these shares, resulting in lower VPIN than that found for shares from small companies, as also verified by Abad and Yagüe (2012) and Wei, Gerace and Frino (2013). It was expected that the companies constituting the various segments of the BM&FBOVESPA have lower VPIN, as verified by Barbedo et al (2009) and Martins and Paulo (2013).…”

Section: Research Hypothesesmentioning

confidence: 80%

“…Abad and Yagüe (2012) were the first to verify this relation in stocks traded in the Spanish market. Wei et al (2013) and Yildiz, Van Ness and Van Ness (2016) found evidence to support such a claim in studies in the Australian and U.S. markets, respectively. Having this in mind, we sought to verify the relation between the VPIN and companies' value in the Brazilian stock market.…”

Section: Vpin Analysis By Market Value Of Stocksmentioning

confidence: 88%

The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA

Siqueira

Amaral

Correia

2017

Rev. contab. finanç.

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This study sought to analyze information asymmetry in the Brazilian stock market and its relation with the returns required from portfolios through the metrics volume-synchronized probability of informed trading. To do this, the study used actual data from the transactions of 142 stocks on the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA), within the period from May 1, 2014, to May 31, 2016. The results point out a high flow toxicity level in the orders of these stocks. In segment analyses of the stock market listing, data suggest there is no clue that stocks from the theoretically more overt segments have a lower toxicity level of order flows. The justification for this finding lies on the negative correlation observed between the market value of stocks and the toxicity level of orders. To test the effect of asymmetric information risk on stock returns, a factor related to the toxicity level of orders was added to the three-, four-, and five-factor models. Through the GRS test, we observed that the combination of factors that optimize the explanation of returns of the portfolios created was the one taking advantage of the factors market, size, profitability, investment, and information risk. To test the robustness of these results, the Average F-test was used in data simulated by the bootstrap method, and similar estimates were obtained. It was observed that the factor related to the book-to-market index becomes redundant in the national scenario for the models tested. Also, it was found that the factor related to information risk works as a complement to the factor size and that its inclusion leads to an improved performance of the models, indicating a possible explanatory power of information risk on portfolio returns. Therefore, data suggest that information risk is priced in the Brazilian stock market.

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“…To solve this calculation problem, Easley et al ( 2011 ) further introduced the volume-synchronized probability of informed trading (VPIN). The existing literature reveals that the VPIN can cause an imbalance in intraday orders (Wei et al 2013 ), resulting in short-term volatility (Wei et al 2013 ; Bjursell et al 2017 ). In a market with asymmetric information, the greater the proportion of informed traders who execute trades based on private information, the larger the impacts on market volatility (Li and Wen 2019 ).…”

Section: Introductionmentioning

confidence: 99%

Effects of investor sentiment on stock volatility: new evidences from multi-source data in China’s green stock markets

et al. 2022

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The effect of investor sentiment on stock volatility is a highly attractive research question in both the academic field and the real financial industry. With the proposal of China's "dual carbon" target, green stocks have gradually become an essential branch of Chinese stock markets. Focusing on 106 stocks from the new energy, environmental protection, and carbon–neutral sectors, we construct two investor sentiment proxies using Internet text and stock trading data, respectively. The Internet sentiment is based on posts from Eastmoney Guba, and the trading sentiment comes from a variety of trading indicators. In addition, we divide the realized volatility into continuous and jump parts, and then investigate the effects of investor sentiment on different types of volatilities. Our empirical findings show that both sentiment indices impose significant positive impacts on realized, continuous, and jump volatilities, where trading sentiment is the main factor. We further explore the mediating effect of information asymmetry, measured by the volume-synchronized probability of informed trading (VPIN), on the path of investor sentiment affecting stock volatility. It is evidenced that investor sentiments are positively correlated with the VPIN, and they can affect volatilities through the VPIN. We then divide the total sample around the coronavirus disease 2019 (COVID-19) pandemic. The empirical results reveal that the market volatility after the COVID-19 pandemic is more susceptible to investor sentiments, especially to Internet sentiment. Our study is of great significance for maintaining the stability of green stock markets and reducing market volatility.

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Informed Trading, Flow Toxicity and the Impact on Intraday Trading Factors

Cited by 11 publications

References 17 publications

VPIN, Jump Dynamics and Inventory Announcements in Energy Futures Markets

VPIN, Jump Dynamics and Inventory Announcements in Energy Futures Markets

The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA

Effects of investor sentiment on stock volatility: new evidences from multi-source data in China’s green stock markets

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