Trading Activity in Commodity Futures and Options Markets

54 Pages Posted: 18 Mar 2020

See all articles by Tianyang Zhang

Tianyang Zhang

Department of Economics, Iowa State University

Date Written: November 18, 2019

Abstract

Little is known about trading activity in commodity options market. We study the information content of commodity futures and options trading volume. Time-series tests indicate that futures contracts in a portfolio with the lowest option-to-futures volume ratio (O/F) outperform those in a portfolio with the highest ratio by 0.3% per week. Cross-sectional tests show that O/F has higher predictive power for futures returns than such traditional risk factors as the carry, momentum, and liquidity factors. O/F has longer predictive horizon for post-announcement returns than the information contained in the monthly World Agricultural Supply and Demand Estimates (WASDE) reports. The analysis of the weekly Commitments of Traders (COT) reports indicates that commercials (hedgers) provide liquidity to non-commercials (speculators) in short term in commodity options market.

Keywords: Commodity market, Trading activity, Options, Futures

JEL Classification: G12, Q13

Suggested Citation

Zhang, Tianyang, Trading Activity in Commodity Futures and Options Markets (November 18, 2019). Available at SSRN: https://ssrn.com/abstract=3542967 or http://dx.doi.org/10.2139/ssrn.3542967

Tianyang Zhang (Contact Author)

Department of Economics, Iowa State University ( email )

260 Heady Hall
Ames, IA 50011
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
86
Abstract Views
569
rank
318,053
PlumX Metrics