Futures‐Trading Activity and Stock Price Volatility

Hendrik Bessembinder, PAUL J. SEGUIN

Research output: Contribution to journalArticle

215 Scopus citations

Abstract

We examine whether greater futures‐trading activity (volume and open interest) is associated with greater equity volatility. We partition each trading activity series into expected and unexpected components, and document that while equity volatility covaries positively with unexpected futures‐trading volume, it is negatively related to forecastable futures‐trading activity. Further, though futures‐trading activity is systematically related to the futures contract life cycle, we find no evidence of a relation between the futures life cycle and spot equity volatility. These findings are consistent with theories predicting that active futures markets enhance the liquidity and depth of the equity markets. 1992 The American Finance Association

Original languageEnglish (US)
Pages (from-to)2015-2034
Number of pages20
JournalJournal of Finance
Volume47
Issue number5
DOIs
StatePublished - 1992
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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