Monotonicity, linearity and symmetry in the price volatility–volume relationship: Evidence from energy futures markets

Abstract

Purpose

This paper aims to investigate the contemporaneous link between price volatility and trading volume in the futures markets of energy.

Design/methodology/approach

Non-parametric (local linear) regression models and formal statistical tests are used to assess monotonicity, linearity and symmetry. The data are daily price and volumes from five futures markets (West Texas Intermediate, Brent, gasoline, heating oil and natural gas) in the USA.

Findings

Trading volume and price volatility have, in all markets, a strong nonlinear relation to each other. There are violations of monotonicity locally but not globally. The qualitative nature of the price shocks may have implications for the trading activity locally.

Originality/value

To the authors’ best knowledge, this is the first manuscript that investigates simultaneously and formally all the three important issues (i.e. monotonicity, linearity and asymmetry) for the price volatility–volume relationship using a highly flexible nonparametric approach.

Citation

Fousekis, P. and Tzaferi, D. (2020), "Monotonicity, linearity and symmetry in the price volatility–volume relationship: Evidence from energy futures markets", Studies in Economics and Finance, Vol. 37 No. 1, pp. 110-133. https://doi.org/10.1108/SEF-09-2019-0344