Abstract
Under the intraday microstructure framework, we analyze the impact of traders’ responses to market information on daily futures price and trading activity by utilizing the unique features of the Class III milk futures contract. The cash settlement and classified pricing scheme distinguish milk futures from those of other commodities. We construct two variables, days to maturity and price deviates, to capture the distinctive features. While the number of days to maturity indicates the length of time before cash settlement in the maturity month, price deviates reflects traders’ aggregate responses to weekly announced information on milk prices. A structural price volatility–trading volume model is specified and estimated using the Bayesian Markov chain Monte Carlo method. The results confirm that (1) the closer to cash settlement, the lower milk price volatility, which is different from the typical “Samuelson effect” for other commodity futures, and (2) both price variability and trading volume increase with traders’ responses to market information and therefore are positively associated.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
