Empirical And Market Liquidity Study Of CSI 300 Stock Index Futures Based On VPIN And High Frequency Data

With the development of information technology,internet and algorithmic trading,high frequency trading plays a very important role in the modern financial markets.In a high-frequency world,order flow toxicity can cause market makers to leave the market in the period of illiquidity.Based on volume imbalance and trade intensity(the VPIN toxicity metric),Easley,Lopez de Prado and O'Hara(2011)present a new method to estimate this flow toxicity.By analyzing the VPIN metric in the "flash crash" period,they show that VPIN is a useful indicator of short-term,toxicity-induced volatility.The Chinese stock market rout in 2015-2016 caused a huge loss,therefore it is important to predict rout before the loss.Thus in this paper,I try to test whether the VPIN metric can forecast the future price volatility and market liquidity of China stock market.In this paper,I use high frequency trading data of CSI 300 Stock Index futures from May.4,2015 to Sep.30,2015,from Jan.4,2015 to Apr.29,2016 and from May.27,2015 to Jun.1,2015.VPINs are calculated within a 5 minutes time frame or 1 minute time frame.I find that VPIN can forecast the future price volatility of stock-index futures and there is a negative relation between VPIN and the market liquidity of the next period.When VPIN increase,the market liquidity of the next period will decrease.