Trading activity and Nifty index futures volatility: an empirical analysis

Sangram Keshari Jena and Ashutosh Dash

Applied Financial Economics, 2014, vol. 24, issue 17, 1167-1176

Abstract: Does the price of Nifty futures have the potential and strength to change? Given that the potential and strength for a price change lie in the trading activity variables, that is, open interest and volume, respectively, the study explores the nature of the relationship between volume, open interest and volatility in the most recent Nifty index futures contract. Applying the GARCH (1, 1) model, the results confirm a significant and positive relationship among today's volatility, current open interest (i.e. potential) and lagged volume (i.e. strength). Therefore, the addition of these two trading variables helps the basic GARCH model predict future volatility better.

Date: 2014
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DOI: 10.1080/09603107.2014.925046

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