The Relationship between Information Flow and Energy Futures Volatility
Review of Futures Markets, Vol. 16, No. 3, pp. 271-300, 2008
37 Pages Posted: 17 Dec 2009
Date Written: 2008
Abstract
We investigate the relationship between volatility and volume in five energy commodity futures contracts traded at the NYMEX for the period 1992 to 2006. We find that conditional volatility shows a high response to large information shocks and exhibits a great sensitivity to total expected and unexpected volume. We note a negative relationship between expected volume and volatility in several contracts which may be attributed to the relative inefficiency about information dissemination and trading of those contracts. Our findings are consistent with the Sequential Information Arrival Hypothesis and show support for the Difference in Opinion theory.
Keywords: Commodity Futures, Volatility, Volume, Sequential Information Arrival Hypothesis, Difference in Opinion Theory
JEL Classification: G14
Suggested Citation: Suggested Citation