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The effect of maturity, trading volume, and open interest on crude oil futures price range-based volatility

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  • Ripple, Ronald D.
  • Moosa, Imad A.

Abstract

The determinants of the volatility of crude oil futures prices are examined using an intra-day range-based measure of volatility. The paper employs two distinct approaches: one is to present a contract-by-contract analysis within the sample period, and the second is based on constructed series for the near-month and next-to-near-month contracts over the entire sample period. The contract-by-contract analysis reveals that trading volume and open interest are significant determinants of volatility that dominate the Samuelson maturity effect. The results support earlier findings of a positive and significant role for trading volume, and they also show the importance of open interest in determining volatility, exerting a significant negative effect. The full-period time series analysis also demonstrates the significant role played by open interest in the determination of futures price volatility, further confirming the importance of trading volume.

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Bibliographic Info

Article provided by Elsevier in its journal Global Finance Journal.

Volume (Year): 20 (2009)
Issue (Month): 3 ()
Pages: 209-219

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Handle: RePEc:eee:glofin:v:20:y:2009:i:3:p:209-219

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Web page: http://www.elsevier.com/locate/inca/620162

Related research

Keywords: Volatility Futures Trading volume Open interest Maturity;

References

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  1. Godfrey, L. G. & Pesaran, M. H., 1983. "Tests of non-nested regression models: Small sample adjustments and Monte Carlo evidence," Journal of Econometrics, Elsevier, vol. 21(1), pages 133-154, January.
  2. Pesaran, M H, 1974. "On the General Problem of Model Selection," Review of Economic Studies, Wiley Blackwell, vol. 41(2), pages 153-71, April.
  3. Herbert, John H, 1995. "Trading volume, maturity and natural gas futures price volatility," Energy Economics, Elsevier, vol. 17(4), pages 293-299, October.
  4. Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
  5. Bessembinder, Hendrik & Seguin, Paul J., 1993. "Price Volatility, Trading Volume, and Market Depth: Evidence from Futures Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(01), pages 21-39, March.
  6. Serletis, Apostolos, 1992. "Maturity effects in energy futures," Energy Economics, Elsevier, vol. 14(2), pages 150-157, April.
  7. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
  8. Mizon, Grayham E & Richard, Jean-Francois, 1986. "The Encompassing Principle and Its Application to Testing Non-nested Hypotheses," Econometrica, Econometric Society, vol. 54(3), pages 657-78, May.
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Cited by:
  1. Souček, Michael, 2013. "Crude oil, equity and gold futures open interest co-movements," Energy Economics, Elsevier, vol. 40(C), pages 306-315.
  2. Elizabeth A. Maharaj & Imad Moosa & Jonathan Dark & Param Silvapulle, 2008. "Wavelet Estimation of Asymmetric Hedge Ratios: Does Econometric Sophistication Boost Hedging Effectiveness?," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(3), pages 213-230, December.

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