Futures Trading Activity and Commodity Cash Price Volatility

27 Pages Posted: 6 Feb 2005  

Jian Yang

University of Colorado at Denver - Business School

R. Brian Balyeat

Xavier University - Department of Finance

David J. Leatham

Texas A&M University - Department of Agricultural Economics

Abstract

This paper examines the lead-lag relationship between futures trading activity (volume and open interest) and cash price volatility for major agricultural commodities. Granger causality tests and generalized forecast error variance decompositions show that an unexpected increase in futures trading volume unidirectionally causes an increase in cash price volatility for most commodities. Likewise, there is a weak causal feedback between open interest and cash price volatility. These findings are generally consistent with the destabilizing effect of futures trading on agricultural commodity markets.

Suggested Citation

Yang, Jian and Balyeat, R. Brian and Leatham, David J., Futures Trading Activity and Commodity Cash Price Volatility. Journal of Business Finance & Accounting, Vol. 32, No. 1-2, pp. 297-323, January 2005. Available at SSRN: https://ssrn.com/abstract=662001

Jian Yang (Contact Author)

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

Ralph Brian Balyeat

Xavier University - Department of Finance ( email )

3800 Victory Parkway
Cincinnati, OH 45207
United States
513 745-3013 (Phone)
513 745-4383 (Fax)

David J. Leatham

Texas A&M University - Department of Agricultural Economics ( email )

College Station, TX 77843-4218
United States
979-845-5806 (Phone)
979-862-1563 (Fax)

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