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The volatility-volume relationship in the LME futures market for industrial metals

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  • Todorova, Neda
  • Clements, Adam E.

Abstract

This study is the first to investigate the volume-volatility relationship for the five most actively traded industrial metal futures contracts of the London Metal Exchange (LME). Based on intraday data of 3-month futures on aluminum, copper, lead, nickel and zinc, it is found that both trading volume and trading frequency are highly relevant. The information content of these variables is not entirely overlapping, with volume being slightly more informative. The series of trading activity variables are decomposed into expected and unexpected components using a rolling window approach. Both anticipated and unanticipated developments appear to be significantly related to volatility. Positive shocks in trading volume and negative shocks in the trading frequency seem to be the dominant factors. Trading volume and number of transactions significantly affect both negative and positive realized semivariance, uncovering further asymmetric facets of the volatility-volume relationship.

Suggested Citation

  • Todorova, Neda & Clements, Adam E., 2018. "The volatility-volume relationship in the LME futures market for industrial metals," Resources Policy, Elsevier, vol. 58(C), pages 111-124.
    • Handle: RePEc:eee:jrpoli:v:58:y:2018:i:c:p:111-124
    DOI: 10.1016/j.resourpol.2018.04.001
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    2. Li, Wenlan & Cheng, Yuxiang & Fang, Qiang, 2020. "Forecast on silver futures linked with structural breaks and day-of-the-week effect," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    3. Han, Xuyuan & Liu, Zhenya & Wang, Shixuan, 2022. "An R-vine copula analysis of non-ferrous metal futures with application in Value-at-Risk forecasting," Journal of Commodity Markets, Elsevier, vol. 25(C).
    4. Tseng‐Chan Tseng & Hung‐Cheng Lai & Jih‐Kuang Chen, 2022. "Impacts of relatively rational and irrational investor sentiment on realized volatility," Asian Economic Journal, East Asian Economic Association, vol. 36(4), pages 458-478, December.
    5. Ciner, Cetin & Lucey, Brian & Yarovaya, Larisa, 2020. "Spillovers, integration and causality in LME non-ferrous metal markets," Journal of Commodity Markets, Elsevier, vol. 17(C).
    6. Pradhan, Rudra P. & Hall, John H. & du Toit, Elda, 2021. "The lead–lag relationship between spot and futures prices: Empirical evidence from the Indian commodity market," Resources Policy, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    Intraday data; Realized volatility; Realized semivariance; Non-ferrous metals; London Metal Exchange; Trading volume;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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