Volume‐volatility relationships for crude oil futures markets

Volume‐volatility relationships for crude oil futures markets When new information arrives on the market, agents react by trading until prices reach a revised, postinformation equilibrium. Trade occurs both in response to the arrival of new information on the asset’s value itself and as risk averse agents engage in hedge rebalancing trades.’ Hedgers are motivated to trade in futures contracts to stabilize their future income flows or costs, with their volume of trading determined by their expectations of future spot (and futures) price movements. Similarly, speculators take an interest in futures contracts based upon their expectations of futures’ price variability. The above process of revision results in changes in prices and trading volume; and, since they are both driven by the same directing variable, namely, the flow of information, it is expected that they will exhibit positive correlation. The precise nature of the relationship between price variability and volume has not, however, found consensus. 1 would like to express my gratitude to Antonios Antoniou and Ian Garrett for valuable guidance and suggestions, and to two anonymous referees for their constructive comments. It should be noted that a s traders switch from nearby contract to nex-nearby contract this creates volume that is not related to the arrival http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Futures Markets Wiley

Volume‐volatility relationships for crude oil futures markets

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
Copyright © 1995 Wiley Periodicals, Inc., A Wiley Company
ISSN
0270-7314
eISSN
1096-9934
D.O.I.
10.1002/fut.3990150805
Publisher site
See Article on Publisher Site

Abstract

When new information arrives on the market, agents react by trading until prices reach a revised, postinformation equilibrium. Trade occurs both in response to the arrival of new information on the asset’s value itself and as risk averse agents engage in hedge rebalancing trades.’ Hedgers are motivated to trade in futures contracts to stabilize their future income flows or costs, with their volume of trading determined by their expectations of future spot (and futures) price movements. Similarly, speculators take an interest in futures contracts based upon their expectations of futures’ price variability. The above process of revision results in changes in prices and trading volume; and, since they are both driven by the same directing variable, namely, the flow of information, it is expected that they will exhibit positive correlation. The precise nature of the relationship between price variability and volume has not, however, found consensus. 1 would like to express my gratitude to Antonios Antoniou and Ian Garrett for valuable guidance and suggestions, and to two anonymous referees for their constructive comments. It should be noted that a s traders switch from nearby contract to nex-nearby contract this creates volume that is not related to the arrival

Journal

The Journal of Futures MarketsWiley

Published: Dec 1, 1995

References

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