Abstract
This study is the first to investigate the volume-volatility relationship for the five most actively traded industrial metal futures contracts of the London Metal Exchange (LME). Based on intraday data of 3-month futures on aluminum, copper, lead, nickel and zinc, it is found that both trading volume and trading frequency are highly relevant. The information content of these variables is not entirely overlapping, with volume being slightly more informative. The series of trading activity variables are decomposed into expected and unexpected components using a rolling window approach. Both anticipated and unanticipated developments appear to be significantly related to volatility. Positive shocks in trading volume and negative shocks in the trading frequency seem to be the dominant factors. Trading volume and number of transactions significantly affect both negative and positive realized semivariance, uncovering further asymmetric facets of the volatility-volume relationship.
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