A VWAP Deviation Factor Combining Quote Bias and Intraday Volatility

Summary

The document proposes an intraday factor intended to capture the distance between volume-weighted average traded price and reference prices. It identifies the daily VWAP, an average midpoint derived from the high and low, an average quote midpoint from the best bid and ask, and relative intraday volatility as inputs. Its stated construction multiplies a VWAP deviation rate by a quote deviation rate and intraday volatility.

The proposed interpretation is that positive readings indicate buyer pressure and negative readings indicate seller pressure, with volatility scaling signal strength. This is a conceptual factor description, not a tested result: it provides no precise normalization details, observation window, security universe, or empirical performance. The sign interpretation and usefulness of the volatility weighting therefore remain hypotheses requiring implementation choices and validation.

Key ideas

• The factor combines VWAP deviation, quote midpoint deviation, and intraday volatility.
• It uses traded-price and quote-based reference measures to characterize price imbalance.
• The author interprets positive values as buyer dominance and negative values as seller dominance.
• Intraday volatility is included as a weight for the perceived strength of the signal.
• The document supplies no empirical validation or complete specification for calculating the deviation rates.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.