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Article

Defeating the VPIN: Slipping into the Noise

E. Dan Glikstein and Lawrence Kryzanowski
The Journal of Trading Summer 2017, 12 (3) 37-47; DOI: https://doi.org/10.3905/jot.2017.12.3.037
E. Dan Glikstein
is a researcher with the John Molson School of Business at Concordia University in Montreal, Canada
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Lawrence Kryzanowski
is the senior Concordia University Research chair in finance at the John Molson School of Business at Concordia University in Montreal, Canada
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Abstract

We use the volume synchronized probability of informed trading (VPIN) to evaluate the performance of different trading strategies in an order-driven simulated market. The performance of this nonparametric metric is assessed in terms of informed traders exploiting its weaknesses when mimicking the trade behavior of uninformed traders and in its protection of market makers from the risk of trading with an informed trader. We show that an informed trader can accumulate a larger position while a pooling equilibrium holds by exploiting the VPIN structure, that the VPIN has a high rate of false-positives, and that it may detect informed trading under certain conditions.

  • © 2017 Institutional Investor, LLC
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The Journal of Trading: 12 (3)
The Journal of Trading
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Defeating the VPIN: Slipping into the Noise
E. Dan Glikstein, Lawrence Kryzanowski
The Journal of Trading Jun 2017, 12 (3) 37-47; DOI: 10.3905/jot.2017.12.3.037

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Defeating the VPIN: Slipping into the Noise
E. Dan Glikstein, Lawrence Kryzanowski
The Journal of Trading Jun 2017, 12 (3) 37-47; DOI: 10.3905/jot.2017.12.3.037
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