Premium
Information Content of Trading Activity in Precious Metals Futures Markets
Author(s) -
Pradkhan Elina
Publication year - 2016
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.21755
Subject(s) - futures contract , volatility (finance) , economics , predictive power , financial economics , futures market , trading strategy , realized variance , high frequency trading , pairs trade , financial market , monetary economics , econometrics , algorithmic trading , alternative trading system , finance , philosophy , epistemology
This study examines the predictive power of trading activity for returns in precious metals futures markets. Based on a Markov switching model, two market regimes are distinguished: “bull” markets that are characterized by rising prices and a low return volatility and “bear” markets that are associated with negative mean returns and a high return variability. There is robust evidence of significant Granger‐causal effects from trading activity to returns in “bull” and “bear” markets that are not detected by models without regime switching. Moreover, the relationship between trading activity and subsequent returns is often asymmetric in different market regimes. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:421–456, 2016