hard · Market Microstructure adverse-selection
VPIN (Volume-synchronized Probability of Informed Trading) is computed as the average absolute imbalance between buy-initiated and sell-initiated volume across sequential equal-volume buckets. A stock trades 10,000 shares per bucket. Over 10 buckets, the absolute order imbalances (|V_buy - V_sell|) in shares are: 1,200; 800; 3,500; 2,100; 900; 4,200; 1,500; 3,800; 600; 2,400.
What is VPIN, and does it suggest elevated adverse-selection risk?
- VPIN = 0.21; this is at a typical elevated threshold, indicating dangerously high informed trading.
- VPIN = 2.10; values above 1 indicate that informed traders dominate all volume.
- VPIN = 0.21; this is below the typical 0.5 alert threshold, suggesting normal adverse-selection risk.
- VPIN = 0.21; the metric is uninformative unless it is computed over at least 50 buckets.
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