VPIN, Jump Dynamics and Inventory Announcements in Energy Futures Markets

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