Abstract
In light of the controversial debate over the measure of Volume-Synchronised Probability of Informed Trading (VPIN), this paper investigates the effectiveness of VPIN as a risk warning signal in the Chinese market. Using intraday transaction data on Chinese stock index futures from 2012 to 2013, we conduct a comparative analysis of VPIN metrics using three trade classification methods: the tick rule (TR), the Lee-Ready (LR) algorithm, and bulk volume (BV). We assess the predictive ability of VPIN metrics for two highly volatile market events in China: the Money Shortage Event in June 2013 and the Fat Finger Event on 16 August 2013. Our results suggest that BV-VPIN has the best risk warning effect in signalling the occurrence of volatile events. Our work suggests that BV-VPIN can be used in the prevalent high-frequency trading (HFT) mechanism of the current financial world.
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1 Zhongzhi He (zhe@brocku.ca), Martin Kusy (mkusy@brocku.ca), Jinzhi Jiang (jinzhi.jiang@brocku.ca) and Samir Trabelsi (strabelsi@brocku.ca), are from Goodman School of Business, Brock University, St. Catharines, Ontario, L2S 3A1. We acknowledge support from CPA Research Excellence Centre. We would like to thank seminar participants at the HEC Montreal, UQAM, and Grenoble University workshops, the 2014 TAFPANA Meeting, and Samir Saadi, Sadok El Ghoul, Mohamed Ayadi, Skandar Lazrak, and Pascal Dumontier for their many helpful comments. The usual caveat applies.
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He, Z., Jiang, J., Kusy, M. et al. Volume-Synchronised Probability of Informed Trading on Chinese Index Futures: A Comparative Approach1 . China Account Financ Rev 18, 5 (2016). https://doi.org/10.7603/s40570-016-0005-6
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DOI: https://doi.org/10.7603/s40570-016-0005-6