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On measuring speculative and hedging activities in futures markets from volume and open interest data

[journal article]

Pardo, Angel
Lucia, Julio Jesus

Abstract

This paper provides a critical assessment of the line of research that measures speculative and hedging activities in futures markets from volume and open interest data. It makes several contributions. First, a detailed theoretical analysis of the measures proposed in the previous literature as prox... view more

This paper provides a critical assessment of the line of research that measures speculative and hedging activities in futures markets from volume and open interest data. It makes several contributions. First, a detailed theoretical analysis of the measures proposed in the previous literature as proxies for speculative activity clarifies the circumstances in which they fail, as well as the assumptions that have to be made, when they are used as intended. Second, we propose a new way of combining the volume and the open interest figures, which provides additional information regarding the type of trading activity that takes place in the market on a given date. Finally, we analyse empirically the basic statistical properties of all the ratios when they are applied to real data for some of the stock index futures contracts most actively traded in the world. This empirical analysis shows the diverse behaviour of the ratios when they are applied to a common sample of real data, which confirms our previous theoretical findings. Our contributions should be taken into account when any of the measures is used as a proxy for the relative importance of speculative demand in empirical analyses.... view less

Classification
Political Economy

Free Keywords
speculation; hedging; futures markets

Document language
English

Publication Year
2010

Page/Pages
p. 1549-1557

Journal
Applied Economics, 42 (2010) 12

DOI
https://doi.org/10.1080/00036840701721489

Status
Postprint; peer reviewed

Licence
PEER Licence Agreement (applicable only to documents from PEER project)


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© 2007 - 2025 Social Science Open Access Repository (SSOAR).
Based on DSpace, Copyright (c) 2002-2022, DuraSpace. All rights reserved.