VPIN,Liquidity And Asset Pricing

With the development and progress of science and technology,high-frequency trading has affected the trading behavior and ways of thinking of the people in a certain extent,like a storm sweepting across the world.Everything is going to be a double-edged sword,of course,high-frequency trading will not escape the rule.On May 6,2010,the United States flash crash events effected the word heavily.Easley(2012)tried to find the cause before the event,and found that the Volume synchronization Probability of Informed Trading information(short for VPIN)can be used to measure the toxicity of order flow of stock market,so that the market-makers can trace VPIN in order to hold the liquidity and control the risk in a certain extent.At the same time,the asset pricing problem is also a topic that never fades,so this article linked VPIN,liquidity and asset pricing to find whether the effect of VPIN on capital asset pricing is through the liquidity.In this paper,by using the high-frequency trading data of GEM,the estimated VPIN is adopted to calculate the probability of informed-trading level of the market.Firstly,we trade the effective bid-ask spread and volume as a direct indicator of liquidity of the high-frequency trading and attempt to explore the correlation between VPIN and liquidity.Furthermore,in order to discover the relationship of VPIN,liquidity and the cross-section return of stocks,the portfolios are constructed under the condition of controlling for ESRD and VOL.From the result,we can see VPIN can not be served as a liquidity index in the GEM of our country,but VPIN can be a risk asset pricing factor and the affect on the stock return is not through liquidity.The impact on the asset pricing of VPIN and liquidity is complementary.