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An empirical examination of the relation between futures spreads volatility, volume, and open interest
Author(s) -
Girma Paul Berhanu,
Mougoué Mbodja
Publication year - 2002
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10047
Subject(s) - futures contract , volatility (finance) , economics , inefficiency , econometrics , financial economics , futures market , conditional variance , autoregressive conditional heteroskedasticity , microeconomics
This study investigates the relation between petroleum futures spread variability, trading volume, and openinterest in an attempt to uncover the source(s) of variability in futures spreads. The study findsthat contemporaneous (lagged) volume and open interest provide significant explanation for futuresspreads volatility when entered separately. The study also shows that lagged volume and lagged open interest,when entered in the conditional variance equation simultaneously, have greater effect on volatility andsubstantially reduce the persistence of volatility. This finding seems to support the sequential informationarrival hypothesis of Copeland (1976). Finally, the findings of this study also suggest a degree ofmarket inefficiency in petroleum futures spreads. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark22:1083–1102, 2002