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This study investigates the relation between petroleum futures spread variability, trading volume, and open interest in an attempt to uncover the source(s) of variability in futures spreads. The study finds that contemporaneous (lagged) volume and open interest provide significant explanation for futures spreads volatility when entered separately. The study alsoThe authors would like to thank the editor, Robert I. Webb, and the anonymous referee for helpful comments and suggestions. We would also like to thank seminar participants at the 2001 Financial Management Association annual meeting in Toronto. We greatly appreciated the support of Vince Apilado, Chair of Department of Finance, while the first author was a visiting Assistant professor at University of Texas at Arlington (1999Arlington ( -2000 shows that lagged volume and lagged open interest, when entered in the conditional variance equation simultaneously, have greater effect on volatility and substantially reduce the persistence of volatility. This finding seems to support the sequential information arrival hypothesis of Copeland (1976). Finally, the findings of this study also suggest a degree of market inefficiency in petroleum futures spreads.

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This study investigated if there is an asymmetric relationships between heating oil and crude oil futures price changes for maturities of one to four months. The study finds that heating oil and crude oil futures price series of one-month to four month maturities are threshold cointegrated. The study also shows that heating oil and crude oil futures prices adjust "Asymmetrically" for deviation from equilibrium. At shorter maturities (one and two month contracts) heating oil and crude oil prices adjust faster for positive deviation from threshold equilibrium. In contrast, for longer maturities (three and four month contracts) heating oil and crude oil prices adjust faster for negative deviation from equilibrium. Finally, this study finds that only heating oil prices adjust to clear deviations from long-run equilibrium relationship.