Flow toxicity of high frequency trading and its impact on price volatility: evidence from the KOSPI 200 futures market

Jangkoo Kang, Kyung Yoon Kwon, Wooyeon Kim

Research output: Contribution to journalArticlepeer-review


We examine the relation between high-frequency trading, flow toxicity, and short-term volatility during both normal and stressful periods. Using transaction data for the Korea Composite Stock Price Index 200 (KOSPI 200) futures, we find the Volume-Synchronized Probability of Informed Trading (VPIN) useful in measuring flow toxicity as it predicts short-term volatility effectively. We further show that high-frequency trading is negatively related to VPIN and short-term volatility during normal times but has a positive association during stressful periods. Finally, we advocate the use of bulk-volume classification (BVC) by presenting evidence that the initiator identified by BVC trades at more favorable prices than the true trade initiator.

Original languageEnglish
Pages (from-to)164-191
Number of pages28
JournalJournal of Futures Markets
Issue number2
Early online date10 Oct 2019
Publication statusPublished - 29 Feb 2020


  • high frequency trading
  • order flow toxicity
  • short-term price volatility
  • VPIN

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