Information, Trading and Volatility: Evidence from Weather-Sensitive Markets

Posted: 9 Aug 2005

See all articles by Jeff Fleming

Jeff Fleming

Rice University - Jesse H. Jones Graduate School of Business

Chris Kirby

UNC Charlotte - Belk College of Business

Barbara Ostdiek

Rice University - Jesse H. Jones Graduate School of Business

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Abstract

We find that the trading- versus nontrading-period variance ratios in weather-sensitive markets are lower than those observed in the equity market and higher than those observed in the currency market. We also find that the variance ratios are substantially lower during periods of the year when prices are most sensitive to the weather. Moreover, the comovement of returns and volatilities for related commodities is stronger during the weather-sensitive season and this increase is driven by stronger comovement during non-trading periods. These results are consistent with a strong link between prices and public information flow and cannot be explained by pricing errors or changes in trading activity.

Keywords: Variance ratios, excess volatility, public information, commodity futures

JEL Classification: G12, G14

Suggested Citation

Fleming, Jeff and Kirby, Chris and Ostdiek, Barbara, Information, Trading and Volatility: Evidence from Weather-Sensitive Markets. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=771999

Jeff Fleming

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
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713-348-4677 (Phone)
713-348-5251 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~jfleming

Chris Kirby

UNC Charlotte - Belk College of Business ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Barbara Ostdiek (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
713-348-5384 (Phone)
713-348-5251 (Fax)

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