Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/166060
Title: PRICE VOLATILITY OF SIMEX FUTURES CONTRACTS LIQUIDITY AND MATURITY EFFECTS
Authors: LYE CHOW KHENG
Issue Date: 1990
Citation: LYE CHOW KHENG (1990). PRICE VOLATILITY OF SIMEX FUTURES CONTRACTS LIQUIDITY AND MATURITY EFFECTS. ScholarBank@NUS Repository.
Abstract: The volatility of futures prices refers to the fluctuations of prices of futures contracts traded in the futures markets. This academic exercise studies firstly, the volatility of futures prices of selected contracts with changing time to maturity of a contract, and secondly, the relationship between volatility and the liquidity of the contract. This study is motivated by the theoretical and practical importance of the two relationships. Specifically, an understanding of the nature of the relationships will provide insights into the statistical distribution of futures prices, thereby permitting a better understanding of the stochastic properties of these prices. The results of volatility studies have implications for the structure of financial markets; for instance, whether speculation has a stabilizing or destabilizing effect on cash and futures prices. In addition, the assimilation of information in the markets can be studied and inferred from the results of the relationships of volatility against time to maturity and liquidity. From a practical perspective, .relationships will also allow adjustments to be made to the hedging effectiveness, and the setting of margin requirements. the nature of the two hedge ratios to improve Four contracts from SIMEX have been selected for this study: the Nikkei Stock Average futures contract, the Eurodollar Time Deposit futures contract, the Japanese Yen and the Deutschemark currency futures contracts. The methodology employed uses different volatility measures and covered the most recently available data. The main results indicate that volatility is not significantly related to the time to maturity of a contract but is strongly related to liquidity. The specific relationship between volatility and liquidity (whether they are positively or negatively related) depends on the variables, volume and open interest, contract types as well as the time periods studied.
URI: https://scholarbank.nus.edu.sg/handle/10635/166060
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