The role of futures trading activity in exchange rate volatility

Article Abstract:

The relationship between the level of trading in currency futures and the variability in underlying exchange rates is investigated due to growing popularity of currency futures. The level of futures trading and the volatility in the spot rates of the British Pound, Canadian Dollar, Japanese Yen, Swiss Franc and the Deutsche Mark are examined. A volatility measure is applied which is consistent with the return distribution of the underlying currencies being studied. Findings show a positive correlation between the level of futures trading and the volatility in exchange rate changes.

Functions related to deposit banking, Foreign Exchange Dealers, Commodity Contracts Dealing, Prices and rates, Foreign exchange, Foreign exchange rates, Pound (United Kingdom), Franc (Switzerland), Yen (Japan), Dollar (Canada), Mark (Germany)

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Does options trading lead to greater cash market volatility?

Article Abstract:

A study was conducted to determine the relationship between options trading activity on the Standard and Poor 500 Index and the variability of the underlying cash index. The results show that an increase in the level of options trading follows increased volatility in the cash market, while an increase in options trading is followed by a drop in cash price variability. This indicates that options trading tends to stabilize cash markets.

Security brokers and dealers, Securities Brokerage, Securities Trading, Options (Finance), Securities industry, Standard and Poor's 500-Stock Price Index (Index)

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Commitment of traders, basis behavior, and the issue of risk premia in futures markets

Article Abstract:

The existence of speculators improves market efficiency and may help reduce costs to hedgers. Although the profitability of significant speculators in the commodity futures market is assumed, they do not bring about immediate risk premia on hedgers. A possibility exists whereby a speculator venturing into the market has no knowledge of the particular category of the trader in the other aspect of contractual arrangements.

Economic aspects, Speculation, Hedging (Finance), Futures market, Futures markets

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