Evaluating VPIN as a Trigger for Single-Stock Circuit Breakers

We study if VPIN (Easley et al., 2012a) is an efficient advance indicator of toxicity-induced liquidity crises and related sharp price movements. We find that high VPIN readings rarely signal abnormal illiquidity, and very occasionally anticipatelarge intraday price changes leading to actual trading halts. We find significant differences in illiquidity and price impact between VPIN-identified toxicand non- toxichalts, but they tend to vanish when we control for ex anterealized volatility. We conclude that the capacity of VPIN to anticipatetruly toxicevents is limited.