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The Information Value of Excessive Speculative Trades on Price Volatility in Oil Futures Markets

Leo H. Chan ^a

Chi M. Nguyen ^b

Kam C. Chan ^c

^aUtah Valley University, Orem, Utah 84058, USA E-mail address: lchan@uvu.edu

^bNational Institute of Mining-Metallurgy Science and Technology, Hanoi, Vietnam E-mail address: cmnguyen@umail.iu.edu

^cWestern Kentucky University, Bowling Green, KY 42101, USA E-mail address: Johnny.chan@wku.edu

International Financial Markets

ISBN: 978-1-78190-311-7, eISBN: 978-1-78190-312-4

Publication date: 16 August 2014

Abstract

In this chapter, we apply the new measure of speculative activities (hereafter, named the speculative ratio) in Chan, Nguyen, and Chan (2013) to study the relationship between those activities and volatility in the oil futures market. We document that the speculative ratio (trading volume divided by open interest) can isolate speculative elements from total trading activities. Using the oil futures data and dividing the data into two subperiods surrounding Hurricane Katrina, we find an increased speculative trades in the post-Hurricane Katrina period. Our results show that speculative activities create a more volatile oil futures market and they lower the information flow between volatility and speculative activities in the post-Hurricane Katrina period.

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Citation

Chan, L.H., Nguyen, C.M. and Chan, K.C. (2014), "The Information Value of Excessive Speculative Trades on Price Volatility in Oil Futures Markets", International Financial Markets (Frontiers of Economics and Globalization, Vol. 13), Emerald Group Publishing Limited, Leeds, pp. 1-24. https://doi.org/10.1108/S1574-8715(2013)0000013006

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Emerald Group Publishing Limited

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