Abstract
We study the Volume Synchronized Probability of Informed Trading (VPIN) proposed by Easley D, López de Prado M, O’Hara (Rev Financ Stud 25:1457–1493, 2010) as a consistent measure of the “order flow toxicity”. The VPIN is a proxy for the probability that informed traders adversely select uninformed ones, notably Market Makers. We use a price-driven, asynchronous, agent-based artificial market where populations of agents evolve according to the general logic and within a similar framework as proposed by Easley D, Kiefer D, O’Hara M, Paperman J (J Financ 51(4):1405–1436, 1996). Among others, we document situations in which the VPIN is at high levels even if no informed trading is at play. This ambiguity in the consistency of the VPIN suggests that this measure may mislead competitive market makers in their decisions about the spread.
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- 1.
For technical details describing the simulation platform, see Mathieu [7].
- 2.
See NYSE-Euronext rule-book, at http://www.euronext.com. In this paper we only use “Limit”, “Market” and “Cancel” orders.
References
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© 2014 Springer International Publishing Switzerland
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Brandouy, O., Mathieu, P. (2014). An Agent-Based Investigation of the Probability of Informed Trading. In: Leitner, S., Wall, F. (eds) Artificial Economics and Self Organization. Lecture Notes in Economics and Mathematical Systems, vol 669. Springer, Cham. https://doi.org/10.1007/978-3-319-00912-4_10
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DOI: https://doi.org/10.1007/978-3-319-00912-4_10
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