Volatility, maturity and volume in the Indian metals futures

Pratap Chandra Pati

Applied Economics Letters, 2018, vol. 25, issue 10, 674-680

Abstract: This study examines the validity of Samuelson hypothesis and the mixture of distribution hypothesis to uncover time-to-maturity and trading volume as the sources of volatility in gold and copper futures. Exponential generalized autoregressive conditional heteroskedasticity model is used for empirical analysis. Leverage effect is found in copper futures but not in gold futures. We find evidence of the Samuelson maturity effect even after controlling for the trading volume. The mixture of distribution hypothesis is strongly supported. Hence trading volume, a proxy for information arrival, is one of the important determinants of volatility, and it dominates time-to-maturity. The results have implications for setting the desired level of margin requirements in futures contracts, designing effective hedging strategy and strengthening the risk management practices.

Date: 2018
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DOI: 10.1080/13504851.2017.1355536

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