VPIN, Jump Dynamics and Inventory Announcements in Energy Futures Markets

Journal of Futures Markets, Forthcoming

49 Pages Posted: 21 Mar 2017

See all articles by Johan Bjursell

Johan Bjursell

Credit Suisse AG

George H. K. Wang

George Mason University - Department of Finance

Hui Zheng

Discipline of Finance, The University of Sydney; Capital Markets CRC Limited

Date Written: March 20, 2017

Abstract

The Volume-Synchronized Probability of Informed Trading (VPIN) metric is proposed by Easley et al. (2011, 2012) as a real-time measure of order flow toxicity in an electronic trading market. This paper examines the performance of VPIN around inventory announcements and price jumps in crude oil and natural gas futures markets with a sample period from January 2009 to May 2015.

We obtain several interesting results:

(1) VPIN increases significantly around inventory announcements with price jumps as well as at jumps not associated with any scheduled announcements.

(2) VPIN does not peak prior to the events but shortly after.

(3) A minor variation of VPIN based on exponential smoothing significantly improves the early warning signal property of VPIN, and this estimate of toxicity returns faster to the pre-event level.

Keywords: VPIN, Order floow toxicity, Price jumps, Inventory announcements, Crude oil futures, Natural gas futures

JEL Classification: G14, G12

Suggested Citation

Bjursell, Carl and Wang, George H. K. and Zheng, Hui, VPIN, Jump Dynamics and Inventory Announcements in Energy Futures Markets (March 20, 2017). Journal of Futures Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2937436

Carl Bjursell (Contact Author)

Credit Suisse AG ( email )

CRTI 4
P.O. Box
Zurich, CH-8070
Switzerland

George H. K. Wang

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

Hui Zheng

Discipline of Finance, The University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9351 3915 (Phone)
+61 2 9351 6461 (Fax)

Capital Markets CRC Limited ( email )

GPO Box 970
55 Harrington Street
Sydney, NSW 2001
Australia

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