Intraday Trading Activity and Volatility: Evidence from Energy and Metal Futures

Vivek Rajvanshi

The IUP Journal of Applied Finance, 2014, vol. 20, issue 2, 57-74

Abstract: We use tick-by-tick data for one energy futures (crude oil) and four metal futures (gold, silver, copper, and zinc) traded at Multi-Commodity Exchange India Limited (MCX) for the period of four years from January 1, 2009 to December 31, 2012. We test and find support for the Mixture-of-Distribution Hypothesis (MDH), which suggests a positive simultaneous relationship between trading volume and price volatility, and the Sequential Information Arrival Hypothesis (SIAH), which argues that information arrives sequentially in the market and there would be a lead-lag relationship between volatility and volume. Further, in order to test the dispersed belief and asymmetrical information hypothesis, we test the impact of the net effect of trading numbers and order imbalance on volatility. We find that trading numbers explain the volume-volatility relationship better than the order imbalance and mainly drive the return volatility in the Indian commodity futures market. Our results find strong support for the above hypotheses and suggest that the four theories—MDH, SIAH, dispersed belief, and asymmetrical information hypothesis—complement each other.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjaf:v:20:y:2014:i:2:p:57-74

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