TY  - JOUR
AB  - 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. © The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.
AU  - Easley, D
AU  - López De Prado, MM
AU  - O'Hara, M
DA  - 2012/05/01
DO  - 10.1093/rfs/hhs053
EP  - 1493
JO  - Review of Financial Studies
PY  - 2012/05/01
SP  - 1457
TI  - Flow toxicity and liquidity in a high-frequency world
VL  - 25
Y1  - 2012/05/01
Y2  - 2026/06/01
ER  -