Volume 15 | Issue 3 | Article 2
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A Return-Volume-Volatility Analysis of Futures Contracts
We investigate the dynamic relation among return, volume, and volatility, using volume data categorized by type of trader. Our research provides surprising evidence that return is related to volume for liquid futures markets. Moreover, we discover the unusual results that return has a much stronger role in explaining the variability of volatility than does volume, and unsigned return often contributes more to the variability of volume than does volatility. These results show that return is part of the information dissemination and processing hypotheses typically only associated with volume and volatility. Also, the bidirectional Granger causality between volatility and volume helps to clarify the conflicting results of recent studies. Finally, we examine various relations for informed and uninformed traders, finding that uninformed traders often create more excess variability in trading volume than do informed traders when they face a shock in return or volatility.
