IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v24y2018icp247-255.html
   My bibliography  Save this article

Index futures volatility and trading activity: Measuring causality at a multiple horizon

Author

Listed:
  • Jena, Sangram Keshari
  • Tiwari, Aviral Kumar
  • Roubaud, David
  • Shahbaz, Muhammad

Abstract

Copeland (1976) and Shalen (1993) state that the causal relationship between trading activity variables, such as volume, open interest and volatility, the three most important factors for traders and portfolio managers, extends beyond one day. However, the literature on causality thus far concerns a one-day horizon. In this study, we provide a more powerful causality test by measuring the strength of the causal relationship over a multiple horizon. The robustness of the results is analysed by splitting the sample into two period pre and post 2008 crisis. Our findings may impact the designing of trading strategies.

Suggested Citation

  • Jena, Sangram Keshari & Tiwari, Aviral Kumar & Roubaud, David & Shahbaz, Muhammad, 2018. "Index futures volatility and trading activity: Measuring causality at a multiple horizon," Finance Research Letters, Elsevier, vol. 24(C), pages 247-255.
  • Handle: RePEc:eee:finlet:v:24:y:2018:i:c:p:247-255
    DOI: 10.1016/j.frl.2017.09.012
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612317302702
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Moonis Shakeel & Shahid Ashraf, 2012. "Empirical Relationship Between Index Futures Prices, Volume and Open Interest: Evidence from Indian Futures Market," The IUP Journal of Applied Finance, IUP Publications, vol. 18(3), pages 48-66, July.
    2. Shalen, Catherine T, 1993. "Volume, Volatility, and the Dispersion of Beliefs," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 405-434.
    3. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
    4. James C. Luu & Martin Martens, 2003. "Testing the mixture‐of‐distributions hypothesis using “realized” volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(7), pages 661-679, July.
    5. Janusz Brzeszczynski & Michael Melvin, 2006. "Explaining trading volume in the euro," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(1), pages 25-34.
    6. Roger A. Fujihara & Mbodja Mougoué, 1997. "Linear dependence, nonlinear dependence and petroleum futures market efficiency," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(1), pages 75-99, February.
    7. Sangram Keshari Jena & Ashutosh Dash, 2014. "Trading activity and Nifty index futures volatility: an empirical analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 24(17), pages 1167-1176, September.
    8. Paul Berhanu Girma & Mbodja Mougoué, 2002. "An empirical examination of the relation between futures spreads volatility, volume, and open interest," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 22(11), pages 1083-1102, November.
    9. Sangram K. Jena, 2016. "Sequential Information Arrival Hypothesis: More Evidence from the Indian Derivatives Market," Vision, , vol. 20(2), pages 101-110, June.
    10. 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.
    11. Jean-Marie Dufour & Eric Renault, 1998. "Short Run and Long Run Causality in Time Series: Theory," Econometrica, Econometric Society, vol. 66(5), pages 1099-1126, September.
    12. Bessembinder, Hendrik & Chan, Kalok & Seguin, Paul J., 1996. "An empirical examination of information, differences of opinion, and trading activity," Journal of Financial Economics, Elsevier, vol. 40(1), pages 105-134, January.
    13. Dufour, Jean-Marie & Taamouti, Abderrahim, 2010. "Short and long run causality measures: Theory and inference," Journal of Econometrics, Elsevier, vol. 154(1), pages 42-58, January.
    14. Julio Lucia & Angel Pardo, 2010. "On measuring speculative and hedging activities in futures markets from volume and open interest data," Applied Economics, Taylor & Francis Journals, vol. 42(12), pages 1549-1557.
    15. Zhang, Hui Jun & Dufour, Jean-Marie & Galbraith, John W., 2016. "Exchange rates and commodity prices: Measuring causality at multiple horizons," Journal of Empirical Finance, Elsevier, vol. 36(C), pages 100-120.
    16. Fung, Hung-Gay & Patterson, Gary A., 1999. "The dynamic relationship of volatility, volume, and market depth in currency futures markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(1), pages 33-59, January.
    17. Copeland, Thomas E, 1976. "A Model of Asset Trading under the Assumption of Sequential Information Arrival," Journal of Finance, American Finance Association, vol. 31(4), pages 1149-1168, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Trading activity; Multiple-horizon Granger causality; Open interest;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:24:y:2018:i:c:p:247-255. 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: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/frl .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.