Can VPIN Forecast Geopolitical Events? Evidence from the 2014 Crimean Crisis

Annals of Finance, 14(1), 125-141 (February 2018)

21 Pages Posted: 26 Aug 2016 Last revised: 1 Mar 2018

See all articles by Felipe Bastos G. Silva

Felipe Bastos G. Silva

University of Missouri, Columbia

Ekaterina Volkova

University of Melbourne - Faculty of Business and Economics

Date Written: December 22, 2017

Abstract

We study the recent Crimean Crisis and the sequence of outcomes that led to the intervention by the Russian Army, which directly affected equity prices in Russia, to investigate how informed traders may have used their advantage to trade prior to the moment markets fell. We compute the Volume-synchronized Probability of Informed Trading (VPIN) for the Russian RTS equity index and for individual stocks, documenting that levels of informed trading increased considerably between one and three trading days before market prices reflected the invasion. We also investigate the predictive power of the cumulative distribution of VPIN on future stock prices, showing a statistically significant (negative) relation during the period of elevated tensions between Russia and Ukraine. Last, we investigate the levels of VPIN measured for global depositary receipts (GDRs) of Russian firms, documenting a similar increasing pattern prior to the invasion date but generally subsequent to the spikes obtained from the corresponding securities locally traded in Russia. Overall, our results provide additional support for the use of VPIN as a tool for monitoring the likelihood of undesirable geopolitical events.

Keywords: Inside Trading, Market Microstructure, VPIN, Crimean Crisis

JEL Classification: G12 G14, G15

Suggested Citation

Silva, Felipe Bastos G. and Volkova, Ekaterina, Can VPIN Forecast Geopolitical Events? Evidence from the 2014 Crimean Crisis (December 22, 2017). Annals of Finance, 14(1), 125-141 (February 2018). Available at SSRN: https://ssrn.com/abstract=2828697 or http://dx.doi.org/10.2139/ssrn.2828697

Felipe Bastos G. Silva (Contact Author)

University of Missouri, Columbia ( email )

331 Cornell Hall
Columbia, MO 65211
United States
5738829905 (Phone)

Ekaterina Volkova

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

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