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The impact of information flow and trading activity on gold and oil futures volatility

Author

Listed:
  • Adam Clements

    (QUT)

  • Neda Todorova

Abstract

There is a long history of research into the impact of trading activity and information on financial market volatility. Based on 10 years of unique data on news items relating to gold and crude oil broadcast over the Reuters network, this study has two objectives. It investigates the impact of shocks in trading activity and traders positions which are unrelated to information flows on realized volatility. Additionally, the extent to which the volume of the information flow as well as the sentiment inherent in the news affects volatility is also examined. Both the sentiment and rate of news flow are found to influence volatility, with unexpected positive shocks to the rate of news arrival, and negative shocks to the sentiment of news flow exhibiting the largest impacts. While volatility is also related to measures of trading activity, their influence decreases after news is accounted for indicating that a non-negligible component of trading is in response to public news flow. After controlling for the level of trading activity and news flow, the net positions of the various types of traders play no role, implying that no single group of traders lead to these markets being more volatile.

Suggested Citation

  • Adam Clements & Neda Todorova, 2014. "The impact of information flow and trading activity on gold and oil futures volatility," NCER Working Paper Series 102, National Centre for Econometric Research.
    • Handle: RePEc:qut:auncer:2014_03
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    File URL: http://www.ncer.edu.au/papers/documents/WP102.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Information flow; Volatility; Oil futures; Gold futures; Trading activity.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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