Journal Press India®

Trends and Determinants of Volatility: A Study of Soybean Futures Contracts

Vol 9 , Issue 1 , January - June 2022 | Pages: 18-42 | Research Paper  

 
Article has been added to the cart.View Cart (0)
https://doi.org/10.17492/jpi.pragati.v9i1.912202


Author Details ( * ) denotes Corresponding author

1. * Saroj Joshi, Research Scholar, Department of Commerce, Department of Commerce, Delhi school of Economics, University of Delhi, New Delhi, Delhi, India (saroj.joshi@srcc.du.ac.in)
2. Ritu Sapra, Professor, Department of Commerce, Department of Commerce, Delhi school of Economics, University of Delhi, New Delhi, Delhi, India (sapra.ritu@gmail.com)

This study examines the trends and determinants of volatility in the context of the Indian futures market by taking soybean futures contracts traded on NCDEX. The sample consists of daily data on closing price, trading volume and open interest from Jan 3, 2005 to Dec 31, 2019. ARMA-GARCH model is being estimated for empirical analysis. The study finds that return distribution exhibits thick tails, time-varying volatility and volatility persistence. The GARCH effects are greater than the ARCH effects, which indicate that volatility is more sensitive to its own lagged values than recent news. The study finds a positive relationship between trading volume and volatility, whereas a negative relationship is observed between open interest and volatility. It was also observed that the inclusion of trading volume and open interest in the GARCH model reduces volatility persistence. The study concludes that trading volume and open interest are two important determinants of volatility.

Keywords

Soybean futures contracts; Trading volume; Open interest; Volatility; GARCH

  1. Bessembinder, H., Chan, K., & Sequin, P. J. (1996). An empirical examination of information, difference of opinion and trading activity. Journal of Financial Economics, 40(1), 105-134.
  2. Bessembinder, H., & Seguin, P. J. (1992). Futures trading activity and stock price volatility. Journal of Finance , 47(5), 2015-2034.
  3. Bessembinder, H., & Seguin, P. J. (1993). Price volatility, trading volume and market depth: Evidence from futures market. Journal of Financial and Quantitative Analysis, 28(1), 21-39.
  4. Black, F. (1976). Studies in price volatility changes. Proceedings of the 1976 Business Meeting of the Business and Economic Statistics Section. 177-81. American Statistical Association.
  5. Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 30(3), 307-328.
  6. Box, G. E., & Jenkins, G. M. (1976). Time series analysis: Forecasting and control San Francisco. Calif: Holden-Day.
  7. Brooks, C. (2008). Univariate time series modelling and forecasting. Introductory Econometrics for Finance (2nd Ed). Cambridge, Massachusetts: Cambridge University Press.
  8. Chan, K. C., Fung, H. G., & Leung, W. K. (2004). Daily volatility behavior in chinese futures markets. Journal of International Financial Markets, Institutions and Money, 14(5), 491-505.
  9. Chen, Y. J., Duan, J. C., & Hung, M. W. (1999). Volatility and maturity effects in the nikkei index futures. The Journal of Futures Markets, 19(8), 895-900.
  10. Clark, P. (1973). A subordinated stochastic process model with finite variance for speculative prices. Econometrica , 41(1), 135-155.
  11. Copeland, T. E. (1976). A model of asset trading under the assumption of sequential information arrival. Journal of Finance, 31(4), 1149-1168.
  12. Engle, R. (1982). Autoregressive conditional heteroscedasticity with estimates of variance of United Kingdom inflations. Econometrica , 50(4), 987-1007.
  13. Epps, T. W., & Epps, M. L. (1976). The stochastic dependence of security price changes and transaction volumes: Implications for the mixture-of-distribution hypothesis. Econometrica , 44(2), 305-325.
  14. Fama, E. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
  15. Fama, E. F. (1965). The behavior of stock-market prices. The Journal of Business, 38(1), 34–105.
  16. Gupta, S. K., & Rajib, P. (2012). Samuelson hypothesis & Indian commodity derivatives market. Asia-Pacific Financial Markets, 19(4), 331-352.
  17. Jennings, R. H., Starks, L. T., & Fellingham, J. C. (1981). An equilibrium model of asset trading with sequential information arrival. Journal of Finance , 36(1), 143-161.
  18. Joarder, S., & Mukherjee, D. (2018). Effects of volume of trade and time to maturity on volatility: The oilseed derivatives market in India. Praj̄nȧn : Journal of Social and Management Sciences, 46(4), 335-351.
  19. Kamara, A. (1993). Production flexibility, stochastic separation, hedging and futures prices. Review of Financial Studies, 4, 935-57.
  20. Lamoureux, C., & Lastrapes, W. (1990). Heteroskedasticity in stock return data: Volume versus GARCH effects. The Journal of Finance, 45(1), 221-229.
  21. Mahajan, S., & Singh, B. (2009). The empirical investigation of relationship between return, volume and volatility dynamics in Indian stock market. Eurasian Journal of Business and Economics, 2(4), 113-137.
  22. Mandelbrot, B. (1963). The variation of certain speculative prices. Journal of Business, 36(4), 394-419.
  23. Morse, D. (1980). Asymmetric information in securities market and trading volume. Journal of Financial and Quantitative Analysis, 15(5), 1129-46.
  24. Pati, P. C. (2006, December). Maturity and volume effects on the volatility: Evidences from NSE fifty futures. In 10th Capital Markets Conference, Indian Institute of Capital Markets Paper.
  25. Ragunathan, V., & Peker, A. (1997). Price variability, trading volume, and market depth: Evidence from the Australian futures market. Applied Financial Economics, 7(5), 447-452.
  26. Tauchen, J. R., & Pitts, M. (1983). The price variability-volume relationship on speculative markets. Econometrica, 51(2), 485-505.
Abstract Views: 9
PDF Views: 21

Advanced Search

News/Events

Institute of Managem...

Deccan Education Society Institute of Management Development and Re...

S.B. Patil Institute...

Pimpri Chinchwad Education Trust's S.B. Patil Institute of Mana...

D. Y. Patil IMCAM, A...

D. Y. Patil Institute of Master of Computer Applications & Managem...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management International Conference on ...

Department of Commer...

Department of Commerce, Faculty of Commerce & Business, University...

Birla Institute of M...

Birla Institute of Management Technology (BIMTECH) 3rd Pritam Singh M...

OP Jindal University...

OP Jindal University, India 4th International Conference on  ...

Department of MBA, N...

Department of MBA, Narayana Engineering College Nellore International...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management Conference Proceedings,...

Online Proceedings R...

Conference Proceedings, March 2023 ISBN: 978-81-956810-6-8 ...

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.