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Monotonicity, linearity and symmetry in the price volatility–volume relationship

Author

Listed:
  • Panos Fousekis
  • Dimitra Tzaferi

Abstract

Purpose - This paper aims to investigate the contemporaneous link between price volatility and trading volume in the futures markets of energy. Design/methodology/approach - Non-parametric (local linear) regression models and formal statistical tests are used to assess monotonicity, linearity and symmetry. The data are daily price and volumes from five futures markets (West Texas Intermediate, Brent, gasoline, heating oil and natural gas) in the USA. Findings - Trading volume and price volatility have, in all markets, a strong nonlinear relation to each other. There are violations of monotonicity locally but not globally. The qualitative nature of the price shocks may have implications for the trading activity locally. Originality/value - To the authors’ best knowledge, this is the first manuscript that investigates simultaneously and formally all the three important issues (i.e. monotonicity, linearity and asymmetry) for the price volatility–volume relationship using a highly flexible nonparametric approach.

Suggested Citation

  • Panos Fousekis & Dimitra Tzaferi, 2020. "Monotonicity, linearity and symmetry in the price volatility–volume relationship," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 37(1), pages 110-133, February.
    • Handle: RePEc:eme:sefpps:sef-09-2019-0344
    DOI: 10.1108/SEF-09-2019-0344
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    Citations

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    Cited by:

    1. Fousekis, Panos & Tzaferi, Dimitra, 2021. "Returns and volume: Frequency connectedness in cryptocurrency markets," Economic Modelling, Elsevier, vol. 95(C), pages 13-20.

    More about this item

    Keywords

    Asymmetry; Volume; Price volatility; Linearity; Monotonicity; G14; C12;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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