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Flow Toxicity Impacts on Liquidity and Intraday Factors in Iran Stock Market

Hassani Jalilian, Amir Hossein | 2022

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 54964 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Zamani, Shiva; Talebiyan, Masoud
  7. Abstract:
  8. Toxic flow occurs when a trader with confidential information trades with a market maker without that information. The trade price is such that the market maker is obliged to provide the desired liquidity by taking the risk of loss for the order. The PIN (Probability of Informed Trading) is widely used to calculate the amount of toxic flow in a market and evaluate the market condition in terms of informed trading. However, Easley et al. (2012a) propose a new alternative method based on high-frequency data and daily orders called VPIN (Volume-Synchronized Probability of Informed Trading), and we apply it in the Iran stock market. This method can give the market makers the ability to predict when they should enter the market, to ensure the liquidity of the market as well as to avoid the loss. We can check other cases with the help of this method, including which intraday variables the VPIN correlates with. i.e., which of the intraday factors can be predicted by VPIN. As a result of this study. We observe that the VPIN parameter and order imbalance can predict liquidity in some stocks, and VPIN as a longer-term variable has more ability than trading imbalance. We observe that these two variables can predict volatility, but in this case, the order imbalance as a short-term variable has shown a greater impact
  9. Keywords:
  10. Informed Trades ; Volatility ; Liquidity ; Ordered Logit Model ; Volume-Synchronized Probability of Informed Trading (VPID) ; Informed Trading Probability

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