Volatility, trading volume and open interest in futures markets

Christos Floros, Enrique Salvador

    Research output: Contribution to journalArticlepeer-review

    8 Citations (Scopus)


    Purpose: The purpose of this paper is to examine the effect of trading volume and open interest on volatility of futures markets. The authors capture the size and change in speculative behaviour in futures markets by examining the role of liquidity variables (trading volume and open interest) in the behaviour of futures prices. Design/methodology/approach: The sample includes daily data covering the period 1996-2014 from 36 international futures markets (including currencies, commodities, stock indices, interest rates and bonds). The authors employ a two-stage estimation methodology: first, the authors employ a E-GARCH model and consider the asymmetric response of volatility to shocks of different sign. Further, the authors consider a regression framework to examine the contemporaneous relationships between volatility, trading volume and open interest. To quantify the percentage of volatility that is caused by liquidity variables, the authors also regress the estimated volatilities on the measures of open interest and trading volume. Findings: The authors find that: market depth has an effect on the volatility of futures markets but the direction of this effect depends on the type of contract, and there is evidence of a positive contemporaneous relationship between trading volume and futures volatility for all futures contracts. Impulse-response functions also show that trading volume has a more relevant role in explaining market volatility than open interest. Practical implications: These results are recommended to financial managers and analysts dealing with futures markets. Originality/value: To the best of the authors’ knowledge, no study has yet considered a complete database of futures markets to investigate the empirical relation between price changes (volatility), trading volume and open interest in futures markets.

    Original languageEnglish
    Pages (from-to)629-653
    Number of pages25
    JournalInternational Journal of Managerial Finance
    Issue number5
    Publication statusPublished - 2016


    • Futures
    • GARCH
    • Open interest
    • Trading volume
    • Volatility


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