Market conditions, trader types and price–volume relation in energy futures markets

Abstract

We investigate the asymmetric relations between trading volume and price changes, and trading volume and price volatility of energy futures contracts across maturities and under different market conditions. Using a relatively long sample of daily observations, we examine whether the impact of trading volume on returns and volatility of futures contracts can be time-varying and dependent on the market condition. We differentiate the market condition based on the slope of the forward curve into backwardation and contango. The results indicate that trading volume and returns are positively related when the market is in backwardation and negatively related when the market is in contango. In addition, the positive relation between changes in trading volume and volatility of futures contracts seem to be stronger when the market is in backwardation than when it is in contango. Finally, the results indicate that, to a certain extent, trade participation and trading activities of agents in energy futures markets can be explained by the slope of the forward curve which reflects the market condition and sentiment.

Dynamic spillover effects across petroleum spot and futures volatilities, trading volume and open interest

“…In addition, the results presented suggest the pronounced financialization of heating oil and gasoline markets as their futures volatility has a leading role in transmitting shocks to the rest of the examined variables. The difference in the results obtained for crude oil and heating oil-gasoline markets can be attributed to the observed asymmetry of the relation between futures volatility and trading volume for the crude oil market but not for the heating oil and gasoline markets, see also Alizadeh and Tamvakis (2016). Specifically, the authors show that the relationship between the two is positive and more sensitive when the market is in backwardation.…”

“…The interest on cross-asset interdependencies in general and within the energy commodities market in particular has been stimulated during and after the period of the global financial crisis (Sadorsky, 2012;Mensi et al, 2014;Baruník et al, 2015;Alizadeh and Tamvakis, 2016). Apart from the historically remarkable and growing dependence of global industrial production on energy commodities, the interest on this specific asset class has been pronounced after 2000's also because of the substantial increase of their price volatility.…”

“…Prior empirical studies have focused on the aforementioned hypotheses across futures markets but do not examine their validity over time for the important class of energy futures markets. Specifically, prior studies on the issue do not investigate the existence, severity and direction of dynamic spillovers across petroleum-based commodities and across spot-futures volatility, trading volume and open interest (Foster, 1995;Moosa and Silvapulle, 2000;Chevallier and Sévi, 2012;Alizadeh and Tamvakis, 2016). To the best of our knowledge, this paper is the first to investigate this issue by providing novel evidence regarding the existence of dynamic (time-varying) spillovers among spot- Prior relevant studies on the research question of this paper include Baruník et al (2015) who investigate dynamic volatility spillovers across futures markets of petroleum-based commodities.…”

“…Furthermore, Barunik and Krehlik (2016) extend the Diebold Yilmaz (DY) (2009; 2012; 2014) estimation framework and provide empirical evidence highlighting the importance of the proper measurement of dynamics across time and frequencies by emphasizing the important role of cross-sectional correlation in the connectedness origins. In another study, Alizadeh and Tamvakis (2016) investigate spillovers between returns and volatilities of energy futures contracts of different maturities and their corresponding trading volumes. The authors show that the state of the market (contango or backwardation) has an effect on the relationship between futures price volatility and changes of trading volume; making the relationship stronger when the market is in backwardation.…”

Do country risk and financial uncertainty matter for energy commodity futures?

“…Our findings thus complement the existing research and shed light on the influence of different dimensions of country risks on energy commodity prices. Fourth, it is well known that trading volume decreases and volatility increases as the maturity of futures contracts increases (Alizadeh & Tamvakis, ). Since the information conveyed by futures contracts varies with different maturity dates, we observe whether and how the length of a futures contract influences the effects of country risks on three major energy markets.…”