IDEAS home Printed from https://ideas.repec.org/a/rsk/journ4/7959664.html
   My bibliography  Save this article

Tracking toxicity in fast and complex markets

Author

Listed:
  • Agnieszka Jach

Abstract

We propose a new method for tracking toxic order flow in high-frequency equity markets. This method consists of two steps. First, a toxicity indicator is calculated for a single asset. Then, the comovement of the indicators of all of the assets is quantified. These steps are based on the (proportional) order imbalances used in the volume probability of informed trading (VPIN), and on the thick pen measure of association (TPMA) methods, adapted from a discrete-time to a continuous-time setup, respectively. Through careful implementation of indicators such as order imbalance and volume-bucket-wise standard deviation, the new metric operates in real time, is void of look-ahead bias and does not rely on long-outdated historical data. When applied to individual Dow Jones Industrial Average stocks and several flash crashes, it tracks the flash crashes adequately. The new metric can aid market makers and market regulators in tracking toxicity based on intraday data, but it does not anticipate the flash crashes.

Suggested Citation

Handle: RePEc:rsk:journ4:7959664
as

Download full text from publisher

File URL: https://www.risk.net/system/files/digital_asset/2024-07/jor_jach_web_final.pdf
Download Restriction: no
---><---

More about this item

Statistics

Access and download statistics

Corrections

All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsk:journ4:7959664. See general information about how to correct material in RePEc.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

We have no bibliographic references for this item. You can help adding them by using this form .

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Paine (email available below). General contact details of provider: https://www.risk.net/journal-of-risk .

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.