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Andersen and Bondarenko's paper "VPIN and the Flash Crash" is essentially a comment on our 2011 Journal of Portfolio Management paper using our measure of order toxicity, VPIN. Andersen and Bondarenko dispute our empirical findings and argue that VPIN essentially does not work. This is incorrect, and is refuted by results in AB and by independent research. Far from "replicating" our results, AB attack a methodology we do not advocate, an analysis we never performed, and conclusions we did not draw. Our note here makes clear why microstructure features play an important role in understanding price dynamics. © 2013 Elsevier B.V.

Andersen and Bondarenko's paper "VPIN and the Flash Crash" is essentially a comment on our 2011 Journal of Portfolio Management paper using our measure of order toxicity, VPIN. Andersen and Bondarenko dispute our empirical findings and argue that VPIN essentially does not work. This is incorrect, and is refuted by results in AB and by independent research. Far from "replicating" our results, AB attack a methodology we do not advocate, an analysis we never performed, and conclusions we did not draw. Our note here makes clear why microstructure features play an important role in understanding price dynamics. © 2013 Elsevier B.V.

Order flow is toxic when it adversely selects market makers, who may be unaware they are providing liquidity at a loss. We present a new procedure to estimate flow toxicity based on volume imbalance and trade intensity (the VPIN toxicity metric). VPIN is updated in volume time, making it applicable to the high-frequency world, and it does not require the intermediate estimation of non-observable parameters or the application of numerical methods. It does require trades classified as buys or sells, and we develop a new bulk volume classification procedure that we argue is more useful in high-frequency markets than standard classification procedures. We show that the VPIN metric is a useful indicator of short-term, toxicity-induced volatility. © The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.

Order flow is toxic when it adversely selects market makers, who may be unaware they are providing liquidity at a loss. We present a new procedure to estimate flow toxicity based on volume imbalance and trade intensity (the VPIN toxicity metric). VPIN is updated in volume time, making it applicable to the high-frequency world, and it does not require the intermediate estimation of non-observable parameters or the application of numerical methods. It does require trades classified as buys or sells, and we develop a new bulk volume classification procedure that we argue is more useful in high-frequency markets than standard classification procedures. We show that the VPIN metric is a useful indicator of short-term, toxicity-induced volatility. © The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.