Flow Toxicity and Liquidity in a High-frequency World

• 成果类型: Article
• 署名作者: Easley, David; de Prado, Marcos M. Lopez; O'Hara, Maureen
• 署名单位: Cornell University; Cornell University; Harvard University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhs053
• 发表日期: 2012
• 页码: 1457
• 关键词: market liquidity; price; INFORMATION; volume

摘要

Order flow is toxic when it adversely selects market makers, who may be unaware they are providing liquidity at a loss. We present a new procedure to estimate flow toxicity based on volume imbalance and trade intensity (the VPIN toxicity metric). VPIN is updated in volume time, making it applicable to the high-frequency world, and it does not require the intermediate estimation of non-observable parameters or the application of numerical methods. It does require trades classified as buys or sells, and we develop a new bulk volume classification procedure that we argue is more useful in high-frequency markets than standard classification procedures. We show that the VPIN metric is a useful indicator of short-term, toxicity-induced volatility.