Research On The Relationship Between VPIN And Market Volatility And Liquidity Based On Bitcoin Spot High-Frequency Data

Internet finance has further developed,and it has already become an indispensable part of modern social economy.In the upsurge of Internet finance,"blockchain" can be regarded as a craze.At present,the digital currency based on blockchain technology has attracted people’s attention with its subversive innovative concepts and advantages.With the development of the Internet,more and more investors participate in the investment of digital currency.However,due to the particularity of the private digital currency,the asset is difficult to have an accurate value anchor and is easily influenced by various factors.Its currency value is not stable,and investors face high investment risks.Therefore,for investors and financial regulators,it is necessary to forewarn the risk of market movements,so as to take measures to reduce the possible losses.This article attempts to use the Volume-Synchronized Probability of Informed Trading(VPIN)as an early warning indicator,and apply it to the digital currency market to help investors and relevant institutions carry out early warning of risk.Based on VPIN,this article explores the following contents: 1)Whether VPIN is applicable to the digital currency market and whether it can give early warning to the price fluctuation;2)the difference between VPIN(REAL＿VPIN)which is based on the real transaction buying and selling direction and VPIN(BVC＿VPIN)which is based on the Bulk Volume Classfication Algorithm(BVC);3)The relationship between REAL＿VPIN and asset price fluctuations and market liquidity.This article uses bitcoin spot transaction data to construct BVC＿VPIN and REAL＿VPIN indicators,and carries on the detailed forewarning analysis to explore the forewarning difference of VPIN index under the two calculation logics.Then,based on REAL＿VPIN,a robust analysis was conducted,and finally the relationship between VPIN and price fluctuations and market liquidity was explored.The empirical results show that: 1)VPIN is suitable for the digital currency market and can be used as an early warning indicator of asset price fluctuations.2)REAL＿VPIN can be earlier than BVC＿VPIN warning,and its performance is more prominent.The relationship between REAL＿VPIN and future volatility depends on the rate of change of REAL＿VPIN.3)REAL＿VPIN can be used as an early warning indicator of market liquidity.REAL＿VPIN has a significant negative correlation with the liquidity in the next period.In summary,VPIN can be used as a risk management indicator for investors,liquidity providers and regulatory authorities.By detecting the change of VPIN index,early warning of abnormal asset prices and market liquidity can be taken to take necessary measures.