Volatility and trading activity in commodity futures markets

This contribution examines a causal link between trading activity and market factors such as returns and volatility. The ratio of volume to open interest in futures contracts performs as trading activity indicator better than other parameters widely adopted in literature. This is probably because the parameter is available at daily frequency while other evidences, collected at weekly intervals, do not reveal all relevant phenomena. The estimations for a non conventional Granger-causality approach (the contemporaneous model) give statistical evidence of a relationship between trading activity and realized volatility. The scale of the coeffcients and their temporal profile show that behaviour of all the twelve futures markets exmined is similar. The test for the contemporaneous causality provides evidence of impact between current level of trading activity and volatility. The results suggest the complete set of relationships that link contemporaneous and lagged values of the variables involved.