The sensitivity of VPIN to the choice of trade classification algorithm

Pöppe, Thomas; Moos, Sebastian; Schiereck, Dirk

doi:10.1016/j.jbankfin.2016.08.006

Cited by 21 publications

(10 citation statements)

References 23 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…A lot of papers were published [3][4][5], and it was proposed to use it for regulation through a VPIN contract [2,6]. However, critics pointed out some flaws, questioning its reliability [7][8][9][10][11] but without providing a quantitative evaluation of the prediction quality (e.g., in terms of precision and recall rates). In this study, we design a framework to detect flash crashes and thereby assess the behavior of the VPIN tool enabling as well as comparing and benchmarking with other predictive algorithms.…”

Section: Main Study Purposementioning

confidence: 99%

See 1 more Smart Citation

An Assessment of the Prediction Quality of VPIN

Bambade¹,

Wu²

2019

Advanced Analytics and Artificial Intelligence Applications

View full text Add to dashboard Cite

VPIN is a tool designed to predict extreme events like flash crashes. Some concerns have been raised about its reliability. In this chapter we assess VPIN prediction quality (precision and recall rates) of extreme volatility events including its sensitivity to the starting point of computation in a given data set. We benchmark the results with the ones of a "naive classifier." The test data used in this study contains 5.6 year's worth of trading data of the five most liquid futures contracts of this time period. We found that VPIN has poor "flash crash" prediction power with the traditional 0.99 decision threshold. Increasing the decision threshold does not significantly improve overall prediction quality. Nevertheless we found VPIN has a more interesting predictive power for flash events of lower amplitude. Finally, we found that, for practice, the last bar price structure is the least sensitive to the starting point of computation.

show abstract

Section: Main Study Purposementioning

confidence: 99%

“…Pöppe et al have reached the same conclusions with a different approach. Using a different classification rule can change VPIN prediction power toward a crash (in their paper a German blue-chip stock [11]). Besides, controlling ex ante parameters seems to give poorer prediction quality [8,9].…”

Section: Modelmentioning

confidence: 99%

An Assessment of the Prediction Quality of VPIN

Bambade¹,

Wu²

2019

Advanced Analytics and Artificial Intelligence Applications

View full text Add to dashboard Cite

show abstract

“…Tomas Pöppe, Sebastian Moos and Dirk Schiereck have arrived to the same conclusions with a different approach. Using a different classification rule can change the VPIN prediction power toward a crash (in their paper a German blue-chip stock) [13]. Besides, controlling ex-ante parameters seem to give poorer prediction quality [10] [11].…”

Section: Probability Of Informed Trading (Pin) a High Value Of The Pmentioning

confidence: 99%

A New Way to Compute the Probability of Informed Trading

Bambade¹

2019

JMF

View full text Add to dashboard Cite

Volume-Synchronized Probability of Informed Trading (VPIN) is a tool designed to predict extreme events like flash crashes in high-frequency trading. Its aim is to estimate the Probability of Informed Trading (PIN), which was built from a probabilistic framework. Some concerns have been raised about its theoretical foundations and its reliability. More precisely, it has been shown that theoretically the VPIN does not approximate the PIN as the PIN has been built with a time-clock framework and the VPIN with a volume clock one. On a practical point of view, the VPIN has been found to be sensitive to the starting point of computation of a data set and to different parameters, such as the classification rule. In this paper, in order to improve the PIN theoretical framework, we firstly analyze the theoretical foundations of the PIN and the VPIN models to have a better view of all its different assumption subtleties. It secondly makes it possible to point out some approximation flaws in the formula used to approximate the PIN and to propose another exact way to compute the PIN. All different results are illustrated with simulations.

show abstract

“…VPIN's efficacy is yet to be established, however. In fact, several studies report high likelihood of false positives for VPINs, limited preventive capacity, difficulty in calculation in fragmented or single trading platforms (Chakrabarty, Pascual, & Shkilko, ), questionable statistical power (O'Hara, ), and unfavourable findings from several empirical attempts (Cheung, Chou, & Lei, ; Phuensane & Williams, ; Pöppe, Moos, & Schiereck, ). In a similar vein, Bethel, Leinweber, Ruebel, and Wu () suggest a yellow‐light signal approach in real time to allow regulators to decelerate the trading pace rather than suspend trading.…”

Section: Challenges In Circuit Breaker Researchmentioning

confidence: 99%

Circuit breakers as market stability levers: A survey of research, praxis, and challenges

Sifat

Mohamad

2018

Int. J Fin Econ

View full text Add to dashboard Cite

Circuit breaker, an automated regulatory instrument employed to deter panic, temper volatility, and prevent crashes, is controversial in financial markets. Proponents claim it provides a propitious time out when price levels are stressed and persuades traders to make rational trading decisions. Opponents demur its potency, dubbing it a barrier to laissez‐faire price discovery process. Since conceptualization in 1970s and practice from 1980s, researchers focused mostly on its ability to allay panic, interference in trading, volatility transmission, prospect of self‐fulfilling prophecy through gravitational pull towards itself, and delayed dissemination of information. Though financial economists are forked on circuit breakers' usefulness, they are a clear favourite among regulators, who downplay the reliability of anti‐circuit breaker findings citing, inter alia, suspect methodology, and lack of statistical power. In the backdrop of 2007–2008 Crisis and 2010 Flash Crash, the drumbeats for more regulatory intervention in markets grew louder. Hence, it is unlikely that intervening mechanism such as circuit breakers will ebb. But are circuit breakers worth it? This paper synthesizes three decades of theoretical and empirical works, underlines the limitations, issues, and methodological shortcomings undermining findings, attempts to explain regulatory rationale, and provides direction for future research in an increasingly complex market climate.

show abstract

The sensitivity of VPIN to the choice of trade classification algorithm

Cited by 21 publications

References 23 publications

An Assessment of the Prediction Quality of VPIN

An Assessment of the Prediction Quality of VPIN

A New Way to Compute the Probability of Informed Trading

Circuit breakers as market stability levers: A survey of research, praxis, and challenges

Contact Info

Product

Resources

About