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Market conditions, trader types and price–volume relation in energy futures markets

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  • Alizadeh, Amir H.
  • Tamvakis, Michael

Abstract

We investigate the asymmetric relations between trading volume and price changes, and trading volume and price volatility of energy futures contracts across maturities and under different market conditions. Using a relatively long sample of daily observations, we examine whether the impact of trading volume on returns and volatility of futures contracts can be time-varying and dependent on the market condition. We differentiate the market condition based on the slope of the forward curve into backwardation and contango. The results indicate that trading volume and returns are positively related when the market is in backwardation and negatively related when the market is in contango. In addition, the positive relation between changes in trading volume and volatility of futures contracts seem to be stronger when the market is in backwardation than when it is in contango. Finally, the results indicate that, to a certain extent, trade participation and trading activities of agents in energy futures markets can be explained by the slope of the forward curve which reflects the market condition and sentiment.

Suggested Citation

  • Alizadeh, Amir H. & Tamvakis, Michael, 2016. "Market conditions, trader types and price–volume relation in energy futures markets," Energy Economics, Elsevier, vol. 56(C), pages 134-149.
    • Handle: RePEc:eee:eneeco:v:56:y:2016:i:c:p:134-149
    DOI: 10.1016/j.eneco.2016.03.001
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    More about this item

    Keywords

    Market condition; Volume; Volatility; Energy Futures; Trade participation;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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