VPIN and the Flash Crash: A Comment

8 Pages Posted: 18 May 2012 Last revised: 29 Sep 2013

See all articles by David Easley

David Easley

Cornell University - Department of Economics

Marcos Lopez de Prado

AQR Capital Management, LLC; Cornell University - Operations Research & Industrial Engineering; RCC - Harvard University

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: May 17, 2012

Abstract

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.

Keywords: Flash crash, liquidity, flow toxicity, market microstructure, probability of informed trading, VPIN

JEL Classification: C02, D52, D53, G14

Suggested Citation

Easley, David and López de Prado, Marcos and O'Hara, Maureen, VPIN and the Flash Crash: A Comment (May 17, 2012). Journal of Financial Markets, Forthcoming; Johnson School Research Paper Series No. 25-2012. Available at SSRN: https://ssrn.com/abstract=2062450 or http://dx.doi.org/10.2139/ssrn.2062450

David Easley (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Marcos López de Prado

AQR Capital Management, LLC ( email )

One Greenwich Plaza
Greenwich, CT 06830
United States

HOME PAGE: http://www.aqr.com

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.orie.cornell.edu

RCC - Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

HOME PAGE: http://www.rcc.harvard.edu

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

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