VPIN and the Flash Crash: A Comment
Cornell University - Department of Economics
Marcos Lopez de Prado
Hess Energy Trading Company; Lawrence Berkeley National Laboratory; RCC at Harvard University
Cornell University - Samuel Curtis Johnson Graduate School of Management
May 17, 2012
Journal of Financial Markets, Forthcoming
Johnson School Research Paper Series No. 25-2012
Recently Andersen and Bondarenko posted a paper on SSRN with the title “VPIN and the Flash Crash” which is essentially a comment on our earlier work on the measure of order toxicity, VPIN. Andersen and Bondarenko dispute our empirical findings and argue that VPIN essentially doesn’t work. We appreciate the interest in our work, but feel strongly that they are confused by what we do and are incorrect in their claims and findings. Far from “replicating” our results, AB attack a methodology we do not advocate, an analysis we never performed, and conclusions we did not draw. We believe it useful, therefore, to set the record straight.
Number of Pages in PDF File: 8
Keywords: Flash crash, liquidity, flow toxicity, market microstructure, probability of informed trading, VPIN
JEL Classification: C02, D52, D53, G14Accepted Paper Series
Date posted: May 18, 2012 ; Last revised: September 29, 2013
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