Trading Mechanisms and Price Volatility: Spot versus Futures

Hun Y Park

The Review of Economics and Statistics, 1993, vol. 75, issue 1, 175-79

Abstract: This paper compares the volatility of spot prices with that of futures prices using two estimators of volatility--natural and temporal. Using intraday data of the Major Market Index and its futures prices, the author shows that the well-known U-shaped volatility patterns during the day are not necessarily due to trading mechanisms. The author also shows that, when a temporal estimator is substituted for a natural estimator, th e U-shaped patterns disappear in both the spot and futures markets. Th e author provides some reasons why a temporal estimator may add more information. Copyright 1993 by MIT Press.

Date: 1993
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