Relations among volume,open interest and volatility in fuel oil futures market
2009
As the study on interior structure and operating characters was deficient in China fuel oil futures market,the dynamic relationships among volatility,volume and open interest were empirically studied through GARCH model,variance decompose,impulse response function and so on.The results show that volume play important roles in explaining volatility.One can forecast volatility by the variability of past volume.The current open interest can explain volatility too;the volatility would decrease if the current open interest increases.On the contrary,the lagged open interest performs no function in explaining the volatility, that is to say,it is impossible to forecast the future price by historical open interest.Considering volume and open interest simultaneously,the volatility would increase if current volume increases,conversely,the volatility would decrease if current volume decreases.The function to volatility that current open interest performs when trading volume and open interest increase together is lesser than when volume increases while open interest doesn't increase.Furthermore,the lagged volume and the lagged open interest perform nothing to volatility.In variance decomposition,residual disturbance of volatility is mainly caused by itself; the volatility has effect on open interest;the volume and open interest have obvious effect on each other.In the end,the impulse response graphs imply that our fuel oil futures market is in accord with the mixture of distributions hypothesis,and the price effect of market depth is temporal.
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