The impact of global financial crisis on informational efficiency: Evidence from price-volume relation in crude palm oil futures market

This study examines price-volume relation in crude palm oil (CPO) futures market during the pre-crisis, crisis and post-crisis periods. Based on daily data from January 2000 to July 2017, cross-correlation function (CCF) provides four findings: First, volatilities of past trading volume and current return are correlated in pre- and post-crisis with an inconsistent sign, supporting the nature of noise trader demand. Second, in the pre-crisis period, both volatilities are negatively correlated within a short time span. Third, during the crisis period, there is no volatility spillover between both series. Fourth, in the post-crisis period, both volatilities of past trading volume and current return are positively correlated within a long time span, in addition to volatility spillover from the current return to the future trading volume which also happens within a short time span. Notably, significant volatility spillovers from trading volume to return across the crisis change the sign of correlations with a longer time span, supporting the “heterogeneity of traders” hypothesis. This study suggests that market participants have become risk-averse, particularly after the crisis. As a result, there has been an increase in volatility persistence which reduces the level of informational efficiency.