Showing papers by "Hendrik Bessembinder published in 1993"

Price Volatility, Trading Volume, and Market Depth: Evidence from Futures Markets

Abstract: The relations between volume, volatility, and market depth in eight physical and financial futures markets are examined. Evidence suggests that linking volatility to total volume does not extract all information. When volume is partitioned into expected and unexpected components, the paper finds that unexpected volume shocks have a larger effect on volatility. Further, the relation is asymmetric; the impact of positive unexpected volume shocks on volatility is larger than the impact of negative shocks. Finally, consistent with theories of market depth, the study shows large open interest mitigates volatility.

Return Autocorrelations around Nontrading Days

Abstract: We document a pattern in the serial dependence of security returns around nontrading days. The correlation of returns the second day after a weekend or holiday with returns the first day after is unusually low, and in many return series is negative, implying a reversal of price movements. We also document unusually large positive return autocorrelations the last day before and the first day after weekends and holidays. The pattern has existed in equity returns for over 100 years, and also exists in several futures markets, implying that the pattern is robust to alternative market microstructures. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure

Abstract: We use price data from an array of futures markets to test whether investors expect spot asset prices to revert, and we identify two sources of equilibrium mean reversion: negative covariation between prices and interest rates, and positive covariation between prices and benefits to holding the asset. We find evidence of mean reversion in every market we examine, although magnitudes and sources differ across markets. For agricultural commodities and crude oil, the mean reversion is strong and arises solely from positive co- movement between prices and benefits to holders of the spot asset. For metals, the mean reversion arises from both sources, but is weaker. For financial assets, mean reversion is weak and is attributable entirely to interest rate sensitivity.

Return Volatility, Cross-Sectional Dispersion, and Trading Activity in the Equity and Futures Markets

Abstract: Several studies provide theoretic analysis of agents' motivations for trading in financial markets. Broadly speaking, these studies imply that trading volume results from (i) information flows, (ii) cross-sectional differences in agents' assessment of value, and (iii) agents' random liquidity needs. In this study, we test some implications of these theories. We provide specific empirical evidence on relations between trading volumes in both the spot equity market and the equity index futures market, and proxies for market wide information flow, security specific information flow, and cross-sectional divergences in traders' opinions. The empirical results are generally consistent with the implications arising from the theoretic models.