Volatility and Trading Activity in Short Sterling Futures

Posted: 27 Sep 2005

See all articles by Elena Kalotychou

Elena Kalotychou

Cass Business School, City, University of London

Sotiris K. Staikouras

City University - Cass Business School; ALBA Graduate Business School

Abstract

The objective of the present study is to examine the interplay between information, trading volume and volatility in Short Sterling futures. More specifically, the paper concentrates on the role of liquidity variables as conduits of information arrival and whether such variables could be an exclusive platform of the market's information set. The analytical framework employed, to examine the interaction among those factors, is based on the conditional volatility family of techniques. The approach is well suited as it naturally leads to examine the interaction among volatility and sources of information. In an attempt to identify proxies of information and their role in determining volatility four main conclusions have emerged. First, the empirical findings suggest that both volume and open interest exhibit a positive correlation with volatility. Second, based on the current methodology, one can observe the persistence and importance of GARCH effects after accounting for liquidity. Third, the liquidity variables remain significantly exogenous compared with other studies. Finally, although both liquidity variables are found significant, their role as vehicles of transmitting information is proved to be weak with respect to the information itself.

Keywords: Short sterling futures, Information set, Volume, Open interest, GARCH modelling

JEL Classification: C22, C50, G10, G14

Suggested Citation

Kalotychou, Elena and Staikouras, Sotiris, Volatility and Trading Activity in Short Sterling Futures. Applied Economics, Vol. 38, pp. 997-1005, 2006. Available at SSRN: https://ssrn.com/abstract=803324

Elena Kalotychou

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain

Sotiris Staikouras (Contact Author)

City University - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

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