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Price Volatility, Trading Volume, and Market Depth: Evidence from Futures Markets

Published online by Cambridge University Press:  06 April 2009

Hendrik Bessembinder  and
Paul J. Seguin
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Abstract

The relations between volume, volatility, and market depth in eight physical and financial futures markets are examined. Evidence suggests that linking volatility to total volume does not extract all information. When volume is partitioned into expected and unexpected components, the paper finds that unexpected volume shocks have a larger effect on volatility. Further, the relation is asymmetric; the impact of positive unexpected volume shocks on volatility is larger than the impact of negative shocks. Finally, consistent with theories of market depth, the study shows large open interest mitigates volatility.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 28 , Issue 1 , March 1993 , pp. 21 - 39
Copyright
Copyright © School of Business Administration, University of Washington 1993

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