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

Hendrik Bessembinder, Paul J. Seguin

Research output: Contribution to journalArticlepeer-review

356 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)21-39
Number of pages19
JournalJournal of Financial and Quantitative Analysis
Volume28
Issue number1
DOIs
StatePublished - 1993

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

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