Order Flow Toxicity and Informed Trading around Known Market Manipulation Events: Evidence from Interest Rate Futures

63 Pages Posted: 12 Jul 2016

See all articles by Pongsutti Phuensane

Pongsutti Phuensane

Khon Kaen Business School; Durham University Business School

Julian M. Williams

Durham Business School

Date Written: July 10, 2016

Abstract

The objective of this paper is an ex-post review of the effectiveness of PIN and VPIN in determining changes in the information structure and order flow of a futures market around documented episodes of recorded manipulation of the reference rate, from the various publicly available regulatory reports. In keeping with previous studies on interest rate derivatives, this analysis finds that the average PIN is far higher for futures than for the equity market at or above 60%. Furthermore, I find a very strong connection between PIN, VPIN and time to maturity of the contract that is not fully explained by the time variation in activity in the market. However, an event study using both a new bootstrap approach and asymptotic standard error on the VPIN and PIN respectively around documented LIBOR manipulation cases has mixed results. For certain events I see a substantial change in the average detected levels of PIN and VPIN, however a cross sectional analysis of all reported cases up to mid-2015, indicates no significant change in the PIN and VPIN for the contracts in this Eurodollar sample.

Keywords: Microstructure, Informed Trading, PIN, VPIN, LIBOR Manipulation, Eurodollar, Market Manipulation, Financial Economics, Law and Economics

Suggested Citation

Phuensane, Pongsutti and Phuensane, Pongsutti and Williams, Julian M., Order Flow Toxicity and Informed Trading around Known Market Manipulation Events: Evidence from Interest Rate Futures (July 10, 2016). Available at SSRN: https://ssrn.com/abstract=2807531 or http://dx.doi.org/10.2139/ssrn.2807531

Pongsutti Phuensane (Contact Author)

Khon Kaen Business School ( email )

Khon Kaen University
123 Moo 16 Mittapap Rd
Khon kaen, Muang District 40002
Thailand

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Julian M. Williams

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

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