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Journal of Finance Vol. 47 No. 5 1992

Futures‐Trading Activity and Stock Price Volatility

Hendrik Bessembinder1; Paul J. Seguin2

1 Department of Finance, Arizona State University, and Department of Finance, University of Michigan, respectively. We thank Michael Barclay, Tony Greig, Gregg Jarrell, Jon Karpoff, Ann Kremer, Barry Schachter, G. William Schwert, Journal of Finance editor René Stulz, an anonymous Journal of Finance · 2 Department of Finance, Arizona State University, and Department of Finance, University of Michigan, respectively. We thank Michael Barclay, Tony Greig, Gregg Jarrell, Jon Karpoff, Ann Kremer, Barry Schachter, G. William Schwert, Journal of Finance editor René Stulz, an anonymous Journal of Finance

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.

DOI
10.1111/j.1540-6261.1992.tb04695.x
Volume
47
Issue
5
Pages
2015-2034
Language
en
Sources
crossref openalex

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