The role of information asymmetry and the level of market trading activity in shaping the time-to-maturity pattern of futures return volatility
Date
2018
Authors
Phan, Hoang Long
Editors
Advisors
Zurbruegg, Ralf
Brockman, Paul
Peranginangin, Yessy
Brockman, Paul
Peranginangin, Yessy
Journal Title
Journal ISSN
Volume Title
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Theses
Citation
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Abstract
I consider two explanations for the mixed empirical results on the Samuelson effect,
which postulates that futures return volatility increases closer to maturity when the
futures price becomes more sensitive to information flows. First, I empirically investigate
Hong’s (2000) theoretical suggestion that information asymmetry has an impact on the
time-to-maturity pattern of commodity futures return volatility (the “volatility pattern”)
by testing the relationships information asymmetry has with the time-to-maturity and
return volatility of commodity futures. I find that information asymmetry rises as
commodity futures near maturity and that this increases return volatility. Thus, this
“speculative effect” amplifies return volatility and can potentially be a more significant
driver of the volatility pattern than Samuelson’s (1965) price elasticity effect.
Second, I directly examine the time-to-maturity pattern of the sensitivity of futures return
volatility to information flows (the “sensitivity pattern”) and find that it has an inverted
U-shape. I point out that the results for tests of a linear volatility pattern are more
significant when the inverted U-shape of the sensitivity pattern tilts more towards
maturity. As an example of the practical implication of my findings, I show that a futures
price series constructed based on contracts that are closest to the peak of the sensitivity
pattern captures higher volatility (9.98% in-sample and 2.63% out-of-sample) than the
often used closest-to-maturity series.
School/Discipline
Business School
Dissertation Note
Thesis (Ph.D.) -- University of Adelaide, Business School, 2018
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