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Information and Noise in U.K. Futures Markets
Author(s) -
Holmes Phil,
Tomsett Mark
Publication year - 2004
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.20104
Subject(s) - futures contract , volatility (finance) , financial economics , economics , noise (video) , stock index futures , econometrics , information flow , computer science , philosophy , stock market index , artificial intelligence , paleontology , linguistics , stock market , image (mathematics) , biology , horse
This paper examines the extent to which futures price changes are driven by noise and information for three U.K. futures contracts by utilizing T. Andersen's (1996) specification of the mixture of distributions hypothesis. Use of the generalized method of moments approach demonstrates that the link between futures volume and volatility can be attributed to the flow of information. More importantly, it is shown that price movements are dominated by informed rather than noise trading for the FTSE‐100, the Long Gilt, and the Brent Oil futures contracts. The results suggest that further regulation based on the notion that noise traders dominate futures trading is unwarranted. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:711–731, 2004