Monotonicity, linearity and symmetry in the price volatility–volume relationship

Panos Fousekis and Dimitra Tzaferi

Studies in Economics and Finance, 2020, vol. 37, issue 1, 110-133

Abstract: Purpose - This paper aims to investigate the contemporaneous link between price volatility and trading volume in the futures markets of energy. Design/methodology/approach - Non-parametric (local linear) regression models and formal statistical tests are used to assess monotonicity, linearity and symmetry. The data are daily price and volumes from five futures markets (West Texas Intermediate, Brent, gasoline, heating oil and natural gas) in the USA. Findings - Trading volume and price volatility have, in all markets, a strong nonlinear relation to each other. There are violations of monotonicity locally but not globally. The qualitative nature of the price shocks may have implications for the trading activity locally. Originality/value - To the authors’ best knowledge, this is the first manuscript that investigates simultaneously and formally all the three important issues (i.e. monotonicity, linearity and asymmetry) for the price volatility–volume relationship using a highly flexible nonparametric approach.

Keywords: Asymmetry; Volume; Price volatility; Linearity; Monotonicity; G14; C12 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-09-2019-0344

DOI: 10.1108/SEF-09-2019-0344

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