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The Impact of Trader Type on the Futures Volatility-Volume Relation

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  • Robert T. Daigler

    (Florida International University,)

  • Marilyn K. Wiley

    (Florida Atlantic University)

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    Abstract

    We examine the volatility-volume relation in futures markets using volume data categorized by type of trader. We find that the positive volatility-volume relation is driven by the general public, a group of traders who are distant from the trading floor and therefore without precise information on order flow. Clearing members and floor traders who observe order flow often decrease volatility. Our findings are consistent with Shalen's (1993) hypothesis that uninformed traders who cannot differentiate liquidity demand from fundamental value change increase volatility. Copyright The American Finance Association 1999.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 54 (1999)
    Issue (Month): 6 (December)
    Pages: 2297-2316

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    Handle: RePEc:bla:jfinan:v:54:y:1999:i:6:p:2297-2316

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    Cited by:
    1. Ashok Thomas & Luca Spataro & Nanditha Mathew, 2013. "Pension funds and Stock Market Volatility: An Empirical Analysis of OECD countries," Discussion Papers 2013/162, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    2. Farag, Hisham & Cressy, Robert, 2011. "Do regulatory policies affect the flow of information in emerging markets?," Research in International Business and Finance, Elsevier, vol. 25(3), pages 238-254, September.
    3. Ming-Hsien Chen & Vivian Tai, 2014. "The price discovery of day trading activities in futures market," Review of Derivatives Research, Springer, vol. 17(2), pages 217-239, July.
    4. Pasquale, Maria & Renò, Roberto, 2005. "Statistical properties of trading volume depending on size," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 518-528.
    5. John M. Griffin & Federico Nardari & Rene M. Stulz, 2004. "Stock Market Trading and Market Conditions," NBER Working Papers 10719, National Bureau of Economic Research, Inc.
    6. Chyi Lee & Simon Stevenson & Ming-Long Lee, 2014. "Futures Trading, Spot Price Volatility and Market Efficiency: Evidence from European Real Estate Securities Futures," The Journal of Real Estate Finance and Economics, Springer, vol. 48(2), pages 299-322, February.
    7. Adam Clements & Neda Todorova, 2014. "The impact of information flow and trading activity on gold and oil futures volatility," NCER Working Paper Series 102, National Centre for Econometric Research.
    8. Geir H. Bjønnes & Dagfinn Rime & Haakon O. Aa. Solheim, 2002. "Volume and Volatility in the FX-Market: Does it matter who you are?," CESifo Working Paper Series 786, CESifo Group Munich.
    9. Kao, Erin H. & Fung, Hung-Gay, 2012. "Intraday trading activities and volatility in round-the-clock futures markets," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 195-209.
    10. Antonakakis, Nikolaos & Kizys, Renatas & Floros, Christos, 2014. "Dynamic Spillover Effects in Futures Markets," MPRA Paper 53876, University Library of Munich, Germany.
    11. Gregor Dorfleitner, 2004. "How short-termed is the trading behaviour in Eurex futures markets?," Applied Financial Economics, Taylor & Francis Journals, vol. 14(17), pages 1269-1279.
    12. Ling-Yun He & Sheng Yang & Wen-Si Xie & Zhi-Hong Han, 2014. "Contemporaneous and Asymmetric Properties in the Price-Volume Relationships in China's Agricultural Futures Markets," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 50(1S), pages 148-166, January.
    13. Tekaya, Rim & Jouaber, Kaouther, 2010. "Time and dynamic Volume-Volatility Relation around Option Listing: Evidence from the French Underlying Stocks," Economics Papers from University Paris Dauphine 123456789/5069, Paris Dauphine University.
    14. Chris Downing & Frank Zhang, 2002. "Trading activity and price volatility in the municipal bond market," Finance and Economics Discussion Series 2002-39, Board of Governors of the Federal Reserve System (U.S.).

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