Advanced Search
MyIDEAS: Login to save this article or follow this journal

Differences in opinions and the volatility-volume relationship on the Tokyo Grain Exchange

Contents:

Author Info

  • James Eaves
  • Magali Valero
Registered author(s):

    Abstract

    Purpose – The purpose of this paper is twofold. The first is to estimate the correlation between market activity and volatility on an exchange that does not use continuous auctions to find prices. The second is to estimate the sensitivity of that relationship to differences in opinions across traders regarding asset value. Design/methodology/approach – Both objectives are accomplished by using seven years of trader-level data from the Tokyo Grain Exchange, which uses rapid sequences of Walrasian tatonnement auctions to discover prices. On the TGE, only one futures contract trades at any given time and all of a commodity's futures contracts are auctioned in a rapid sequence, with only seconds between a sequence's auctions. The results are interpreted under the hypothesis that this design causes traders' beliefs to become more accurate and more uniform as a sequence progresses. Findings – Intraday volume is u-shaped while intraday volatility is downward sloping. The volume–volatility link is positive and stays constant or strengthens as traders' beliefs about value become more precise. The link is driven by trades originating from small futures commission merchants, especially those trades entered on behalf of customers. Research limitations/implications – Evidence that accounting for cross-correlations when estimating volatility can have an important effect on estimates is presented. Researchers are encouraged to further explore the implications of cross-correlations. Practical implications – The paper includes implications for existing theory, the measurement of volatility, and the design of central exchanges. Originality/value – This paper uses the TGE as a natural laboratory to test theory. It is the first such study to use data from an exchange that does not use continuous auctions, and the first to document the simultaneous existence of u-shape volume and downward-sloping volatility.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=329E71513C1EA3A54DEC90AA65C2AC33?contentType=Article&contentId=1801451
    Download Restriction: Cannot be freely downloaded

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Agricultural Finance Review.

    Volume (Year): 69 (2009)
    Issue (Month): 2 (July)
    Pages: 180-195

    as in new window
    Handle: RePEc:eme:afrpps:v:69:y:2009:i:2:p:180-195

    Contact details of provider:
    Web page: http://www.emeraldinsight.com

    Order Information:
    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
    Email:
    Web: http://www.emeraldinsight.com/afr.htm

    Related research

    Keywords: Agricultural products; Commodity markets; Economic processes; Future markets; Japan;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eme:afrpps:v:69:y:2009:i:2:p:180-195. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.