BV-VPIN: Measuring the Impact of Order Flow Toxicity and Liquidity on International Equities Markets

27 Pages Posted: 8 Jun 2016

See all articles by Rand Kwong Yew Low

Rand Kwong Yew Low

University of Queensland; Bond University

Te Li

Columbia University

Terry Marsh

Quantal International Inc.

Date Written: June 6, 2016


Order flow toxicity is a measure of a trader's exposure to the risk that counter-parties possess private information or other informational advantages. High levels of order flow toxicity can culminate in market makers providing liquidity at a loss or in suboptimal execution of trades. From a regulatory perspective, high levels of toxicity can be harmful to overall market liquidity and precede precipitous drops in asset prices. Bulk Volume VPIN (BV-VPIN) is one way of measuring the "toxicity" component of order flow that has been successfully applied in High Frequency Trading (HFT) environments. We apply the BV-VPIN to daily data for a range of international indices to extend previous analysis of its properties. We find that a rise in BV-VPIN effectively foreshadows high-levels of volatility in the equities indices of several countries. If a BV-VPIN futures contract exists, we show that it would exhibit safe haven characteristics during market downturns. In particular, a simple active portfolio management strategy that times investments in equities (risk-free asset) when BV-VPIN levels are low (high) outperforms a buy-and-hold strategy. Thus, we find support for the application of BV-VPIN in international equities.

Keywords: VPIN, Bulk Volume Classification, international equities, liquidity, order flow toxicity

JEL Classification: G12, G14, C58, D53

Suggested Citation

Low, Rand Kwong Yew and Li, Te and Marsh, Terry, BV-VPIN: Measuring the Impact of Order Flow Toxicity and Liquidity on International Equities Markets (June 6, 2016). Available at SSRN: or

Rand Kwong Yew Low (Contact Author)

University of Queensland ( email )

Building 37-411, Joyce Ackroyd
St Lucia
Brisbane, QLD 4122


Te Li

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Terry Marsh

Quantal International Inc. ( email )

Two Embarcadero Center
8th Floor
San Francisco, CA 94111
United States
415-744-5301 (Phone)


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