Information Content of Trading Activity in Precious Metals Futures Markets

Abstract

This study examines the predictive power of trading activity for returns in precious metals futures markets. Based on a Markov switching model, two market regimes are distinguished: "bull" markets that are characterized by rising prices and a low return volatility and "bear" markets that are associated with negative mean returns and a high return variability. There is robust evidence of significant Granger-causal effects from trading activity to returns in "bull" and "bear" markets that are not detected by models without regime switching. Moreover, the relationship between trading activity and subsequent returns is often asymmetric in different market regimes.

Financial activity in agricultural futures markets: evidence from quantile regressions

“…Chuang et al . ; Gebka and Wohar ; Pradkhan ). This study does not consider the total trading activity, but focuses on different trader categories and extends the traditional Granger causality approach by analysing Granger causality from changes in trader positions to subsequent price returns based on quantile regressions.…”