An investigation of the relationship between bond market volatility and trading activities: Korea treasury bond futures market

Abstract

This study proposes a new proxy variable for the speculative trading activities in the analysis of relationship between volatility and trading activities. With the new variable, it examines the dynamic interaction among underlying bond market volatility, futures trading volume, open interest and speculation ratio in Korea treasury bond and futures markets under the vector autoregressive analysis (VAR) framework. A positive relationship is found between the bond market volatility and the speculation ratio. The result implies that the new variable could be a good candidate, reflecting the speculative trading activities in derivative markets.