Article

China Accounting and Finance Review

, 18:5

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

Volume-Synchronised Probability of Informed Trading on Chinese Index Futures: A Comparative Approach1

  • Zhongzhi (Lawrence) HeAffiliated withGoodman School of Business, Brock University
  • , Jinzhi JiangAffiliated withGoodman School of Business, Brock University
  • , Martin KusyAffiliated withGoodman School of Business, Brock University
  • , Samir TrabelsiAffiliated withGoodman School of Business, Brock University Email author 

Abstract

In light of the controversial debate over the measure of Volume-Synchronised Probability of Informed Trading (VPIN), this paper investigates the effectiveness of VPIN as a risk warning signal in the Chinese market. Using intraday transaction data on Chinese stock index futures from 2012 to 2013, we conduct a comparative analysis of VPIN metrics using three trade classification methods: the tick rule (TR), the Lee-Ready (LR) algorithm, and bulk volume (BV). We assess the predictive ability of VPIN metrics for two highly volatile market events in China: the Money Shortage Event in June 2013 and the Fat Finger Event on 16 August 2013. Our results suggest that BV-VPIN has the best risk warning effect in signalling the occurrence of volatile events. Our work suggests that BV-VPIN can be used in the prevalent high-frequency trading (HFT) mechanism of the current financial world.

Keywords:

VPIN Information Toxicity High Frequency Trading Trade Classification Rules Risk Warning Effect