An empirical examination of the relation between futures spreads volatility, volume, and open interest

Paul Berhanu Girma and Mbodja Mougoue

Journal of Futures Markets, 2002, vol. 22, issue 11, 1083-1102

Abstract: This study investigates the relation between petroleum futures spread variability, trading volume, and open interest in an attempt to uncover the source(s) of variability in futures spreads. The study finds that contemporaneous (lagged) volume and open interest provide significant explanation for futures spreads volatility when entered separately. The study also shows that lagged volume and lagged open interest, when entered in the conditional variance equation simultaneously, have greater effect on volatility and substantially reduce the persistence of volatility. This finding seems to support the sequential information arrival hypothesis of Copeland (1976). Finally, the findings of this study also suggest a degree of market inefficiency in petroleum futures spreads. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:1083–1102, 2002

Date: 2002
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