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Are Algos Ruining Everything for Us? The Predictive Relationship between Informed Trading and Security Returns under Different Market Conditions

High Frequency Trading (HFTs) have dramatically changed the way markets operate through supplanting traditional market makers. Numerous studies and pundits have postulated a link between HFTs and market sell-off severity. Developed by Easley and O’Hara, the Volume Synchronized Probability of Informed Trading (VPIN) is a metric that uses volume imbalances to determine the probability of informed trading. This study finds that a time-based variation of VPIN can be useful in predicting market sell-offs as it has a positive relationship with forward semivariance and a negative relationship with forward returns under different market conditions.

Identiferoai:union.ndltd.org:CLAREMONT/oai:scholarship.claremont.edu:cmc_theses-3187
Date01 January 2019
CreatorsLi, Jia Jian
PublisherScholarship @ Claremont
Source SetsClaremont Colleges
Detected LanguageEnglish
Typetext
Formatapplication/pdf
SourceCMC Senior Theses

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